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Informist, Tuesday, Dec. 24, 2024

 

NEW DELHI – Economists from the Reserve Bank of India warned on Tuesday that freebies announced by state governments in recent months could eat into the money needed to take key infrastructure, both social and economic, further forward.

 

"Several States have announced sops in their 2024-25 Budgets including free electricity to agriculture and households, free transport, allowances to unemployed youth and monetary assistance to women. Such spending may divert resources away from critical social and economic infrastructure development," central bank staff said in an article reviewing government finances for the first half of the current financial year. The paper, written by RBI staff from its Department of Economic and Policy Research, does not represent the views of the central bank.

 

The warning from RBI economists comes close on the heels of comments the central bank made in its study of state budgets, published Thursday, where it said that a sharp rise in subsidy spending is an "area of incipient stress". "States need to contain and rationalise their subsidy outgoes, so that such spending does not crowd out more productive expenditure," it had said.

 

Several political parties have announced schemes often called 'freebies' in recent months in a bid to win state elections. For instance, the Bharatiya Janata Party-led Maha Yuti alliance stormed to power in Maharashtra last month on the back of the state government's 'Ladki Bahin' scheme.

 

According to Madhavi Arora, chief economist at Emkay Global Financial Services, as per Maharashtra's budget for 2024-25, the state only has 24% of revenue available for discretionary expenditure, with the majority 76% taken up by committed expenditure of salaries, pension, subsidies, and interest. As such, if subsidies keep rising, the state's lagging capital expenditure becomes the "casualty", Arora said in a note earlier this month.  End

 

Reported by Siddharth Upasani

Edited by Deepshikha Bhardwaj

 

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