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Informist, Monday, Nov. 25, 2024

 

By Siddhi Chauhan

 

MUMBAI – Last week, the Bharatiya Janata Party-led Mahayuti alliance sprung a surprise as it retained power in Maharashtra. Economists say the new state government may resort to cutting its capital expenditure to accommodate the pre-poll freebies within the fiscal deficit target for 2024-25 (Apr-Mar).

 

The Mahayuti alliance comprises the BJP, the Eknath Shinde-led Shiv Sena, and the Ajit Pawar-led Nationalist Congress Party. It scored a landslide win in Maharashtra by securing 235 Assembly seats, leaving the Opposition Maha Vikas Aghadi far behind at just 49 seats. Analysts credit the success of the ruling alliance to its 'Ladki Bahin Yojana', under which the government provides financial assistance of INR 1,500 a month to working women.  

 

Among its pre-poll promises, the BJP proposed upping these monthly payments to INR 2,100 a month. Economists estimate an additional outlay of INR 56 billion-INR 90 billion for the state to implement the scheme. In its full Budget for FY25, Maharashtra pegged its fiscal deficit target at INR 1.10 trillion, or 2.59% of the gross state domestic product. The Centre allows states a limit of 3% of GSDP as fiscal deficit, with room for another 0.5% slippage if it undergoes power sector reforms.

 

"It (The expansion of financial assistance to women) could result in an additional fiscal cost of INR 56 billion till March," Gaura Sen Gupta, chief economist at IDFC FIRST Bank, said. "Hence, while there are chances that the deficit could overshoot 2.6% of GSDP target, the extent is limited by the fact that majority of the fiscal year is behind us." 

 

Apart from this scheme, the Mahayuti alliance also promised a new unemployment benefits scheme, cash transfers of INR 15,000 to all farmers under PM Kisan Yojana, increased wages for ASHA and Aanganwadi workers, and increased old age and widow pension. In a note, Macquarie Capital said it expects the freebies to lead the state government to cut its capital expenditure in order to meet its fiscal target.

 

"The programmes announced on social welfare schemes during elections normally can be subsumed in the budget without upsetting fiscal math," Madan Sabnavis, chief economist, Bank of Baroda said. "In case it gets difficult to manage the deficit, the government can cut back on discretionary expenditure like capex."

 

Maharashtra has already been slow on its capital expenditure, meeting only 23% of its full-year target by September-end, Emkay Global Financial Services said in a note. The brokerage expects a fiscal hit of an additional INR 70 billion-INR 90 billion from the women assistance scheme alone. However, the threat of fiscal slippage is not only for Maharashtra but also across the country, due to the success of the poll freebies in recent state elections, the note said.

 

"Freebie politics will only increase fiscal pressure, implying aggregate states' FY25 Budget Estimate fiscal deficit/GSDP of 3.0% is likely to see mild slippage to 3.15%, with the capex likely becoming the casualty and hence slipping by 0.4-0.5% of GDP against 2.4% budgeted," Madhavi Arora, chief economist at Emkay, said in the note.  End

 

Edited by Tanima Banerjee

 

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