 "Freebie debate: Growing debt is forcing states to rethink poll promises")
With rising debt and widening fiscal deficits, several states are being forced to reassess their welfare commitments. Populist schemes, once key to electoral victories, are now straining state finances, prompting governments to scale back subsidies, revise budgets, and rethink spending priorities. From Himachal Pradesh’s deepening revenue shortfall to Maharashtra’s cuts in social schemes, fiscal prudence is taking precedence over political pledges.
The Reserve Bank of India (RBI) has repeatedly cautioned against the rising debt-to-GDP ratio in several states, warning that unchecked spending could lead to long-term financial instability. Official data shows that Punjab, West Bengal, and Kerala already allocate a significant portion of their revenue towards debt servicing, limiting their ability to fund new welfare initiatives.
Experts argue that while social schemes are essential for inclusive growth, unchecked expansion without corresponding revenue growth could undermine economic stability. The challenge is clear—how can public welfare be sustained without pushing state economies deeper into crisis?
Budget woes amid rising debt for Himachal Pradesh
Himachal Pradesh Chief Minister Sukhvinder Singh Sukhu presented the state’s Budget for 2025-26 with an outlay of ₹58,514 crore, focusing on rural development and financial relief measures. The budget includes an increase in the minimum support price (MSP) for crops grown through natural farming, a hike in dearness allowance for government employees, and the clearance of pending pension arrears.
However, the state’s fiscal health remains a concern. The revenue deficit for 2025-26 stands at ₹6,390 crore, up from ₹4,514 crore the previous year. Himachal’s fiscal deficit is ₹10,338 crore, or 4.04 per cent of the gross state domestic product (GSDP). The state has been grappling with rising liabilities, including pending employee payments and pension burdens. The government has borrowed ₹27,000 crore in the past two years, pushing total debt to ₹86,589 crore.
With limited revenue streams, the government is cutting subsidies and rationalising expenditure. It has decided to streamline 14 subsidies, including power and transport allowances for commercial entities and free bus travel for women. Bureaucrats say that unchecked populist schemes have widened the fiscal gap, necessitating stricter fiscal discipline.
In Maharashtra, Pawar’s budget reduces welfare expenditure
Maharashtra’s Budget for 2025-26 takes a cautious approach, with total expenditure at ₹7.2 trillion and the fiscal deficit projected at ₹1.36 trillion. The state’s debt burden, which stood at ₹7.5 trillion, is expected to rise to ₹9.25 trillion, underscoring financial challenges. Deputy Chief Minister Ajit Pawar has reduced or withdrawn allocations for several welfare schemes introduced by the previous government.
Notably, the Mukhyamantri Ladki Bahin Yojana, which was initially allocated ₹46,000 crore, has been trimmed to ₹36,000 crore. Other schemes, including Anandacha Shidha (ration kits for the destitute) and Teertha Darshan Yojana (pilgrimage allowance for senior citizens), have not received new allocations in the budget.
The government argues that the cuts are necessary to prevent further fiscal strain. However, the move has sparked political controversy, with opposition parties accusing the administration of prioritising fiscal discipline over public welfare.
Welfare schemes continue in Madhya Pradesh, but with reductions
Madhya Pradesh’s ₹4.21 trillion Budget for 2025-26 represents a 15 per cent increase over the previous year, but includes cuts to various welfare programmes.
The Ladli Behna Yojana allocation has been reduced from ₹18,984 crore to ₹18,669 crore, with similar reductions in funding for Ladli Laxmi Yojana and Pradhan Mantri Gram Sadak Yojana. Budgetary support for government schools has also been trimmed, with primary school funding declining from ₹15,509 crore to ₹11,837 crore.
To sustain key welfare initiatives, the government is linking beneficiaries of Ladli Behna to central schemes such as the Atal Pension Yojana and PM Jeevan Jyoti Bima Yojana. While efforts are being made to uphold commitments, financial constraints have necessitated adjustments to existing programmes.
Karnataka’s rising public debt and fare hikes
Karnataka’s growing debt burden is also a concern, with liabilities projected to rise from ₹6.85 trillion in 2024-25 to ₹7.64 trillion in 2025-26. The Economic Survey of Karnataka warns that the state’s outstanding liabilities could reach 27 per cent of GSDP, raising questions about long-term fiscal stability.
Amid these challenges, the government has increased bus fares by 15 per cent across state-run transport corporations to offset the cost of the Shakti scheme, which provides free bus travel for women. The fare hike is expected to generate an additional ₹7.84 crore per day, helping transport corporations manage financial shortfalls.
The survey notes that Karnataka’s interest payments on debt will rise to ₹45,600 crore in 2025-26, reflecting the growing burden of past borrowings. Officials argue that while borrowing is essential for development, consolidating welfare schemes will be crucial to maintaining fiscal stability.
The road ahead for welfare spending
With multiple states facing mounting debt and widening fiscal deficits, governments are making tough choices on welfare spending. While social schemes remain politically significant, their sustainability is now under scrutiny amid shrinking revenues and rising debt servicing costs. The debate continues: Can states afford to sustain welfare policies without jeopardising long-term financial stability?
(With inputs from agencies)