New Delhi: As the dust settles on the recent state elections in Madhya Pradesh, Mizoram, Chhattisgarh, Rajasthan, and the upcoming poll in Telangana, one resounding theme echoes across party lines—the allure of freebies and guarantees. The question that looms large is whether this political strategy of offering extravagant promises without fiscal prudence is sustainable. In the arena of state politics, the battle is not just about ideologies its a race to outdo each other in announcing free electricity, bus rides, bicycles, scooters, smartphones, and more.In a departure from the norm, guarantees and freebies have taken center stage in these state elections. Parties are engaged in a fierce competition, each attempting to outshine the other with promises that range from financial support for agriculture to direct cash transfers. This shift gained momentum after the Karnataka elections in May 2023 when the Congress, riding high on its Five Guarantees, tasted victory. The trend has only intensified since, with parties vying to declare more enticing guarantees than their rivals.Price of promisesThe extravagant promises come at a cost, and the Reserve Bank of India (RBI) has repeatedly warned about the fiscal implications of such largesse. The states, however, seem undeterred, proceeding with announcements that lack long-term considerations. Whether its the BJP or the Congress, the competition to make eye-catching guarantees is overshadowing discussions on development, industries, and job creation.Who bears the burdenBehind the curtain of promises lie debt-ridden power distribution companies, responsible for fulfilling commitments like free power. As of March 2021, these companies carried a staggering debt of Rs 5.86 lakh crore, equivalent to around three percent of Indias GDP. Tamil Nadu and Madhya Pradesh are major contributors to this financial burden. Increasing free power provisions only exacerbates the financial strain, but politicians seem unfazed by the mounting liabilities.Are state liabilities a ticking time bombBeyond the debt of distribution companies, states grapple with outstanding liabilities (OL), estimated to be around 32 percent of the GDP as of March 2022. High OL translates to increased spending on loan repayments and interest, forming a significant portion of the states committed expenditure. This inescapable financial obligation includes employee salaries, interest on borrowings, and pensions, leaving limited resources for development initiatives and new projects.The 2023-24 budget estimates reveal a worrying trend, with many states allocating over 50 percent of their earnings to committed expenditures. Punjab has surpassed 75 percent, Himachal Pradesh stands at around 80 percent, and other states like Rajasthan, Kerala, and Bengal also face a similar financial squeeze. The situation raises concerns about the ability of states to fund developmental activities and innovative projects.Are parties borrowing from tomorrow for todays gainWhile political parties engage in a borrowing spree to fulfill their poll promises, the ramifications are clear—it benefits the current generation at the expense of future ones. The competition for votes through extravagant guarantees diverts attention from essential developmental agendas. As politicians vie to offer discounted gas cylinders and cash incentives, the long-term economic health of the states hangs in the balance. Will this trend lead to sustainable growth, or is it a ticking time bomb for the fiscal future of these regions Only time will tell.
