Mahayuti's Maharashtra Victory: Impact of New Sops and Freebies on State Finances
Maharashtra Chief Minister Eknath Shinde celebrated the Mahayuti alliance's landslide victory, announcing increased benefits for underprivileged women and farmers. However, these new initiatives are expected to add significant pressure to the state's fina
MaharashtraMahayuti AllianceFiscal PressureInfrastructure ProjectsGovernment SopsReal Estate MaharashtraDec 01, 2024
The Mukhya Mantri Majhi Ladki Bahin Yojana, which pays Rs1,500 per month to underprivileged women, has been a major reason behind the Mahayuti’s resounding success. So far, around 2.5 crore women have received five instalments under the scheme. On Sunday, Shinde announced that as promised in the Mahayuti's manifesto, women covered under the scheme would now receive Rs2,100 a month.
While beneficiaries will undoubtedly celebrate the additional money, it will certainly add to the pressure on the state's finances. 'For Maharashtra, fiscal pressure will intensify in the near term—the implementation of pre-poll promises to raise Ladki Bahin aid to Rs2,100, implying an annualised budgetary increase of 40 per cent to Rs64,400 crore from Rs46,000 crore, with Maharashtra's FY2025 budget likely bearing Rs7,000-9,000 crore additional cost,' said Madhavi Arora, lead economist at Emkay Global Financial Services.
The Mahayuti has also promised to increase the amount for farmers under the Shetkari Samman Yojana to Rs15,000 annually from Rs12,000. This is in addition to farm loan waivers. The manifesto also mentioned a price support scheme in alignment with the minimum support price to cover price variations up to 20 per cent. It has also promised to provide a range of kitchen rations every month to low-income families under the Akshay Anna Yojana. Under the Annapurna Yojana, the government provides three free LPG cylinders to poor families.
When Ajit Pawar, the deputy chief minister and finance minister, presented the budget earlier this year, he informed that the state’s debt would touch Rs7.82 lakh crore by March 2025, which will be 18.35 per cent of the gross state domestic product (GSDP). While this is below the prescribed limit of 25 per cent, Maharashtra will still rank number two in total debt among all the states in the country, after Tamil Nadu.
The Comptroller and Auditor General (CAG) has raised concerns over Maharashtra's fiscal health. According to the CAG, the state's fiscal deficit increased by 5.13 per cent to Rs67,601.87 crore in 2022-23, compared to Rs1,64,301.86 crore in 2021-22. In this year’s budget, the fiscal deficit was targeted at Rs1.1 lakh crore. Additionally, after the budget, the state government also raised supplementary demands of over Rs94,000 crore.
A falling debt to GSDP ratio is considered healthy. However, Maharashtra's public debt to GSDP ratio increased from 13.25 per cent in 2018-19 to 14.72 per cent in 2022-23. The ratio of total outstanding liabilities to GSDP rose to 18.73 per cent in 2022-23 from 17.27 per cent in 2018-19. During the five-year period from 2018-19 to 2022-23, Maharashtra could achieve revenue surplus only during 2018-19, as per the CAG report.
'The Ladki Bahin scheme was not the only thing announced, there were many other largesse. When you already have a Rs1 lakh crore deficit, you are adding Rs1 lakh crore more. This may be good politics, but bad economics,' said author and editor Girish Kuber.
One positive outcome of the Mahayuti victory is the boost for infrastructural projects in Mumbai and other parts of the state. Many projects, including several metro lines in Mumbai, have been delayed and have seen cost escalations. The government will be looking to complete these projects at the earliest. There were also several new projects announced, including new metros and road projects.
The Mahayuti victory in Maharashtra 'bodes well in the medium term, as the state suffered due to the fractured political mandate in recent years, with its performance on growth and infrastructure parameters lagging behind most other states, as a result,' according to Emkay's Arora.
The stability of the government and policy continuity is crucial to fast-tracking delayed infrastructure projects, which are vital to the state’s economic growth. 'Focused infrastructure development will enhance logistical competitiveness, facilitate well-planned real estate development, and attract commercial players and manufacturing industries. This can be supported by offering fiscal relaxations in areas such as land acquisition, power costs, development premiums, and tax benefits,' said Niranjan Hiranandani, chairman of the real estate body NAREDCO (National Real Estate Development Council).
However, large funds will be needed to finance these projects. With fiscal pressure already rising due to the various sops, analysts worry that there could be sharp cuts in capital expenditure to keep the deficit in control.
In October this year, the Brihanmumbai Municipal Corporation took a decision to auction three plots on a 30-year-lease, with a provision to extend it further. This decision was taken to generate revenue amid rising liabilities in the wake of several infrastructure projects to be developed, like the tunnel linking the suburbs of Goregaon and Mulund and the western leg of the coastal road project.
With the assembly elections over, the attention will now shift to local body polls. The Mahayuti’s recent win could set a precedent for more sops and freebies. 'There has to be competitive federalism,' said Kuber. 'But, currently we are in the phase of competitive populism.'
Frequently Asked Questions
What is the Mukhya Mantri Majhi Ladki Bahin Yojana?
The Mukhya Mantri Majhi Ladki Bahin Yojana is a scheme that pays Rs1,500 per month to underprivileged women in Maharashtra. After the Mahayuti alliance's victory, this amount has been increased to Rs2,100 per month.
What other initiatives has the Mahayuti alliance promised?
The Mahayuti alliance has promised to increase the amount for farmers under the Shetkari Samman Yojana to Rs15,000 annually from Rs12,000, provide a price support scheme in alignment with the minimum support price, and offer a range of kitchen rations to low-income families under the Akshay Anna Yojana.
What is the current state of Maharashtra's fiscal health?
Maharashtra's fiscal health has been a concern. The state's fiscal deficit increased by 5.13 per cent to Rs67,601.87 crore in 2022-23, and the public debt to GSDP ratio has increased from 13.25 per cent in 2018-19 to 14.72 per cent in 2022-23.
How will the Mahayuti alliance's victory impact infrastructure projects in Maharashtra?
The Mahayuti alliance's victory is expected to boost infrastructure projects in Mumbai and other parts of the state. This includes completing delayed projects and launching new ones like new metros and road projects.
What are the concerns about the new sops and freebies announced by the Mahayuti alliance?
The new sops and freebies, while popular among beneficiaries, are expected to add significant pressure to the state's finances. Analysts worry that there could be sharp cuts in capital expenditure to keep the deficit in control.
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