MK Global report, "States ignore fiscal balance during elections"

After Corona, the efforts to establish fiscal balance in the states as well as the central government were going well. In the current fiscal year, however, the Centre is making progress, but many states' circumstances are unfavorable. A big reason behind this is populist promises and their implementation.

This has been told in a report released on Tuesday by MK Global, a leading economic research agency of the country. In the last two years, elections have been held in ten states of the country, and in all these states, very attractive populist promises have been made, the implementation of which will put a burden on the financial health of these states.

Also, there are many states which are presenting very optimistic estimates about their revenue collection. This will also backfire on them. MK Global Chief Economist Madhavi Arora says that the tradition of distributing free rebates in the elections held in Indian states is very old.

Their estimates show that in the last two decades when elections have been held in 20 states, their fiscal deficit compared with a state's gross domestic product-GDP has been 0.5 percent more than normal. Whereas revenue expenditure has also been seen at 0.4 percent in the election year. Their assessment also indicates that in terms of the states, the situation of high fiscal deficit in the election year has been the highest in states such as Chhattisgarh, Maharashtra, Bihar, Madhya Pradesh, Odisha, Jharkhand and Andhra Pradesh.

Most of these states had been scheduled to go for fresh elections before the end of next year, 2025. According to Ms Arora, "The combined subsidy bill for the states has been pegged at Rs 3.7 lakh crore in their budget estimates for 2024-25.".

This accounts for 8.6 percent to 8.7 percent of the total revenue collection of the states. This huge amount the states have given as subsidy only in the year 2020-21, during the Corona period. In one year, the subsidy bill has gone up by 26% and this has happened just because of announcements of free schemes. MK Global also said in its report that there is the probability of more borrowing by the states in the current situation. Already, the borrowing of the states is increasing. This year it may increase by 8-10 percent. Total borrowing for states is set to reach Rs 11 lakh crore by the end of the financial year 2025 against a projected increase of 9 per cent over the previous fiscal.