Populism and freebies seem to be coming back into fashion with the results of the parliamentary elections in Maharashtra and Jharkhand.
While the BJP-led Mahayuti alliance won the Maharashtra Assembly elections through its Ladki Bahin Yojana, the ruling INDI Alliance secured the mandate in Jharkhand with its own welfare schemes, including the Maiya Samman Yojana and farm loan waivers.
However, analysts have warned that the implementation of pre-election promises, including a higher monthly allocation under the hugely popular Ladki Bahin scheme, could put more fiscal pressure on Maharashtra’s finances and reduce government spending. investment of the two States.
As part of its pre-poll promises, the Mahayuti alliance had committed to increase the monthly allocation of the Ladki Bahin Yojana to Rs 2,100 from the current Rs 1,500 per beneficiary.
Macquarie Capital said in a note on Monday that the result of this fiscal policy is that Maharashtra’s fiscal deficit will exceed the targets set for the state at 3 per cent, and the state will have to reduce investments to meet the targets.
“Overall, investments will need to increase significantly by around 52% at the central government level and around 40% at the state level in the second half of FY 2025 (according to ICRA) , as did the first half of fiscal 2025. we recorded contractions of 15% and 10% respectively,” he says.
The overall capital expenditure for Maharashtra is estimated at Rs 835 billion for the current financial year and the Ladki Bahin scheme will bring in nearly Rs 350 billion this year, he said.
Attributing the increased participation of women voters in national elections to the promise of increased spending under the program, Macquarie also pointed out that, while it was only supposed to benefit 10 million people, the approach The state government’s lenient approach to reviewing applications has increased this rate. two and a half times, to reach 25 million beneficiaries.
Jharkhand has a Maiya Samman Yojana that transfers Rs 1,000 per month transferred to the accounts of eligible women and has also promised a farm loan waiver of Rs 4 billion to 1.8 lakh farmers.
Emkay Global Financial Services highlighted in a note that for Jharkhand, increasing the MSY to Rs 2,500 per month would imply expenditure of Rs 90 billion (1.9% of GSDP) against Rs 60 billion initially budgeted (1.3 %) for FY25.
“Although Maharashtra’s fiscal parameters have deteriorated over the year(s), the fiscal position in the first half of FY25 for Maharashtra and Jharkhand is so far comfortable, thanks to spending of “limited investments (% of FY25BE made in the first half of FY25: 23% and 34%, respectively.),” he said. But he warned that higher gifts amid an increase in the number of beneficiaries and the amount would make revenue more difficult, at a time when existing outlays represent 66% and 36% of their receipts, respectively.
As states face increasing challenges in revenue mobilization, the giveaway policy will only increase fiscal pressure, implying that states’ overall FD/GSDP rate of 3% for FY25 is likely to see a slight slippage, with investments likely becoming the casualty and therefore a decline of around 0.4 to 0.5. % of GDP against 2.4% budgeted, the report further warns.
