Subsidies have long been a tool for welfare and social support in India. However, with rising govt debt and limited fiscal space, their sustainability is under scrutiny
An NIPFP study reveals key trends: volatile revenue and shrinking fiscal space after pandemic. States like Punjab face a crisis, with debt soaring by 44.23% between 2016 and 2022
The GST implementation has curtailed states’ taxing power, leaving minimal scope for additional revenue generation
Essential services and committed spend now dominate state Budgets
Explicit subsidies, including direct support and debt relief, consume a significant portion of states’ discretionary Budgets, further constraining fiscal flexibility
Poor targeting, lack of transparency, and unsustainable debt relief are common issues in states like Punjab, Rajasthan, and WB, where subsidies exceed 20% of revenue expenditure
To enhance fiscal space and promote economic growth, states must reassess and rationalise subsidies
Aligning subsidies with their objectives is crucial for efficient public fund utilisation