{"id":79036,"date":"2026-07-13T18:20:19","date_gmt":"2026-07-13T12:50:19","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=79036"},"modified":"2026-07-13T18:21:37","modified_gmt":"2026-07-13T12:51:37","slug":"states-fiscal-freebies","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/13-07-2026\/states-fiscal-freebies","title":{"rendered":"States Fiscal Math in the Age of &#8216;Freebies&#8217;"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/ Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Welfare freebies are being increasingly offered by states, and while overall state finances in India are broadly stable, fiscal stress is rising in highly indebted states.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Fiscal Position of States<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The combined fiscal deficit of states was below <strong>3 percent of gross domestic product during FY2017-FY2024, <\/strong>except during the COVID-19 pandemic when the deficit rose to<strong> 4.1 percent <\/strong>of gross domestic product in FY2021.<\/li>\n\n\n\n<li>The fiscal deficit of states increased to<strong> 3.3% of GDP in FY2025 <\/strong>and is projected to stay at the same level in FY2026.<\/li>\n\n\n\n<li>To ensure fiscal prudence, the <strong>16th Finance Commission<\/strong> has recommended that states must retain the fiscal deficit limit of <strong>3 percent of Gross State Domestic Product (GSDP).<\/strong><\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-group has-background\" style=\"background-color:#fff2cc\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p><strong>What is the fiscal deficit?<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Fiscal Deficit is defined as excess of total budget expenditure (revenue and capital) over total budget receipts (revenue and capital) excluding borrowings during a fiscal year.<\/li>\n\n\n\n<li><strong>Fiscal Deficit<\/strong> = Total Expenditure \u2013 (Revenue Receipts + Non-Debt Creating Capital Receipts).<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Variation in Fiscal Management Among States<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>States vary widely in their capacity to control <strong>welfare spending<\/strong> without endangering fiscal stability.\n<ul class=\"wp-block-list\">\n<li>Expenditure on<strong> unconditional cash transfer schemes,<\/strong> particularly those targeted towards women, has increased significantly in recent years.<\/li>\n\n\n\n<li>Spending on such schemes has increased from 0.01% of GDP in FY2021 to around <strong>0.57% of GDP in FY2026<\/strong> (Budget Estimates).<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Among states, Jharkhand spends the highest share of its <strong>GSDP (Gross State Domestic Product)<\/strong> on<strong> unconditional cash transfers <\/strong>at around<strong> 2.1%, followed by West Bengal, Odisha, Madhya Pradesh, Chhattisgarh, Kerala and Maharashtra.<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Odisha<\/strong> has been able to fund its welfare schemes largely through its own revenues and has been maintaining a <strong>revenue surplus since FY2016.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img data-dominant-color=\"e9e1df\" data-has-transparency=\"false\" style=\"--dominant-color: #e9e1df;\" loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"438\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/07\/image-135-1024x438.png\" alt=\"\" class=\"not-transparent wp-image-79037\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/07\/image-135-1024x438.png 1024w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/07\/image-135-300x128.png 300w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/07\/image-135-768x329.png 768w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2026\/07\/image-135.png 1096w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p><\/p>\n\n\n\n<div class=\"wp-block-group has-background\" style=\"background-color:#fff2cc\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<p><strong>What are Freebies?<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Freebies <\/strong>are non-merit, consumption-based benefits that do not create long-term public assets and are usually meant for immediate relief or electoral appeal.\n<ul class=\"wp-block-list\">\n<li>Often the practice is used by political parties offering free goods, services, or subsidies to the public, particularly during election campaigns, in an attempt to garner votes.\u00a0<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Section 123 of the RP Act deals with \u2018corrupt practices\u2019<\/strong>, it says that it is deemed a corrupt practice if any gift, offer or promise of gratification is made to voters directly or indirectly by a candidate or his agent or any other person acting on their consent.<\/li>\n\n\n\n<li><strong>S. Subramaniam Balaji vs. State of Tamil Nadu (2013): <\/strong>The Supreme Court upheld the right of political parties to offer freebies but emphasized that the distribution of freebies should be done responsibly.\n<ul class=\"wp-block-list\">\n<li>It stated that only an individual candidate, not his party, can commit a \u2018corrupt practice\u2019 under the RP Act by promising free gifts.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Concerns Related to Freebie-Based Expenditure<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Growing debt burden: <\/strong>States with weak revenue bases and limited fiscal capacity could see their debt burden increase as subsidy and cash transfer expenditure rises.<\/li>\n\n\n\n<li><strong>Crowding Out of Productive Spending:<\/strong> Excess allocation towards revenue expenditure may shrink the fiscal space for investments in infrastructure, health, education and other productive sectors.<\/li>\n\n\n\n<li><strong>Less fiscal flexibility:<\/strong> Long-term commitments under welfare schemes might reduce the capacity of states to respond effectively to financial crises, natural disasters or other emergencies.<\/li>\n\n\n\n<li><strong>Fiscal risks not revealed: <\/strong>Absence of transparency on off-budget borrowing and contingent liabilities can generate hidden fiscal risks and threaten the sustainability of government finances.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Ahead<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>States need to strengthen their <strong>Fiscal Responsibility and Budget Management (FRBM) frameworks <\/strong>to ensure fiscal discipline.\n<ul class=\"wp-block-list\">\n<li>The FRBM framework implemented by way of the <strong>FRBM Act, 2003<\/strong> is a set of rules and principles to ensure fiscal discipline, control government borrowing, reduce fiscal deficits and promote sustainable public finances.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>States need to <strong>increase their own revenue generation<\/strong> and cut down excessive borrowing.<\/li>\n\n\n\n<li>More attention should be paid to <strong>productive investment in the form of capital expenditure<\/strong> and to the promotion of long-term economic growth.<\/li>\n\n\n\n<li>Public finances should be sustainable, and this requires that <strong>off-budget liabilities be reported transparently<\/strong> and fiscal assessments be made regularly.<\/li>\n<\/ul>\n\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/www.business-standard.com\/economy\/news\/states-fiscal-math-in-the-age-of-freebies-stable-but-strains-remain-126062400856_1.html\" rel=\"nofollow noopener\" target=\"_blank\"><strong>BS<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong><br \/>\nContext<\/p>\n<p><\/strong><\/p>\n<li class=\"ms-5\">\nWelfare freebies are being increasingly offered by states, and while overall state finances in India are broadly stable, fiscal stress is rising in highly indebted states.<\/p>\n<\/li>\n<p><\/p>\n<p><strong><\/p>\n<p>Fiscal Position of States<\/p>\n<p><\/strong><\/p>\n<li class=\"ms-5\"\t>\n<p>The combined fiscal deficit of states was below 3 percent of gross domestic product during FY2017-FY2024, except during the COVID-19 pandemic when the deficit rose to 4.1 percent of gross domestic product in FY2021.<\/p>\n<\/li>\n<li class=\"ms-5\">\n<p>The fiscal deficit of states increased to 3.3% of GDP in FY2025 and is projected to stay at the same level in FY2026.<\/p>\n<\/li>\n<p><a href=\" https:\/\/www.nextias.com\/ca\/uncategorized\/13-07-2026\/states-fiscal-freebies \" class=\"btn btn-primary btn-sm float-end\">Read More<\/a><\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-79036","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/79036","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=79036"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/79036\/revisions"}],"predecessor-version":[{"id":79041,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/79036\/revisions\/79041"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=79036"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=79036"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=79036"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}