Maharashtra and Jharkhand Assembly Polls: Populism Triumphs but Fiscal Health at Risk
The assembly elections in Maharashtra and Jharkhand have seen a resurgence in populism and freebies, with the BJP-led Mahayuti alliance in Maharashtra and the INDI Alliance in Jharkhand winning on the back of welfare schemes. However, analysts warn that t
MaharashtraJharkhandAssembly PollsFiscal DeficitWelfare SchemesReal Estate MaharashtraNov 25, 2024
In Maharashtra, the BJP-led Mahayuti alliance swept the assembly elections largely due to its Ladki Bahin Yojana, a popular welfare scheme. The alliance has pledged to increase the monthly allowance under this scheme from Rs 1,500 to Rs 2,100 per beneficiary. This increase, while politically appealing, is expected to put a strain on the state's finances. Macquarie Capital, in a recent note, highlighted that this fiscal policy will likely cause Maharashtra's fiscal deficit to exceed the target of 3%, leading to a potential cut in capital expenditure to meet the targets.
The overall capital expenditure outlay for Maharashtra is estimated at Rs 835 billion for the current fiscal year. The increased outlay under the Ladki Bahin Yojana will add a significant Rs 350 billion to this year’s budget. Macquarie Capital also noted that the increased turnout of women voters in the state elections can be attributed to the promise of a higher allowance under the scheme. Initially, the scheme was supposed to benefit 10 million beneficiaries, but a lenient approach to applications has inflated this number to 25 million.
Similarly, in Jharkhand, the INDI Alliance secured its mandate with the Maiya Samman Yojana, which transfers Rs 1,000 per month to eligible women, and a promised farm loan waiver of Rs 4 billion to 1.8 lakh farmers. Emkay Global Financial Services warned that increasing the allowance under the Maiya Samman Yojana to Rs 2,500 per month would result in an additional expenditure of Rs 90 billion, representing 1.9% of the state's GSDP. This is a significant increase from the initially budgeted Rs 60 billion (1.3% of GSDP) for FY25.
While the fiscal situation for both Maharashtra and Jharkhand has been relatively comfortable in the first half of FY25, with limited capital expenditure achieved, analysts warn that the rising number of beneficiaries and the higher amount of freebies will make revenue expenditure stickier. At a time when the existing committed expenditure is 66% and 36% of their respective revenue receipts, the fiscal pressure is expected to intensify.
With states facing increasing revenue mobilisation challenges, the trend of freebie politics is likely to exacerbate fiscal pressure. This could result in a mild slippage in the aggregate states' fiscal deficit to GSDP ratio, which is currently set at 3% for FY25. Capital expenditure, already constrained by budget cuts, is likely to slip by 0.4-0.5% of GDP, compared to the budgeted 2.4%.
In summary, while populism and freebies have helped secure electoral victories in Maharashtra and Jharkhand, the long-term fiscal health of these states remains a cause for concern. Both states will need to carefully manage their finances to ensure sustainable development and economic growth.
Frequently Asked Questions
What is the Ladki Bahin Yojana in Maharashtra?
The Ladki Bahin Yojana in Maharashtra is a welfare scheme that provides a monthly allowance to eligible beneficiaries. The BJP-led Mahayuti alliance has pledged to increase this allowance from Rs 1,500 to Rs 2,100 per beneficiary.
How will the increase in the Ladki Bahin Yojana allowance affect Maharashtra's fiscal deficit?
The increase in the allowance under the Ladki Bahin Yojana will add a significant Rs 350 billion to the state's budget, likely causing the fiscal deficit to exceed the target of 3%. This may lead to a cut in capital expenditure to meet the deficit targets.
What is the Maiya Samman Yojana in Jharkhand?
The Maiya Samman Yojana in Jharkhand is a welfare scheme that transfers Rs 1,000 per month to eligible women. The INDI Alliance has promised to increase this amount to Rs 2,500 per month, which will significantly increase the state's expenditure.
What are the fiscal implications of the farm loan waiver in Jharkhand?
The farm loan waiver of Rs 4 billion to 1.8 lakh farmers in Jharkhand will add to the state's fiscal burden. This, combined with the increased allowance under the Maiya Samman Yojana, will strain the state's finances and may lead to cuts in other areas of expenditure.
How do analysts view the fiscal health of Maharashtra and Jharkhand post-elections?
Analysts warn that the fiscal health of both states will be under pressure due to the increased number of beneficiaries and the higher amount of freebies. This could result in a mild slippage in the fiscal deficit and a reduction in capital expenditure.
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