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Informist, Thursday, Jun. 26, 2025

 

NEW DELHI – Indian states' stronger emphasis on social welfare spending is likely to keep their revenue deficit elevated in the current fiscal year, limiting their capacity to undertake capital expenditure, acording to a report by Crisil Ratings. The welfare spending of the top 18 states is projected to jump 56.1% to INR 6.4 trillion in 2025-26 (Apr-Mar).

 

"Rise in revenue deficit normally results in state governments reducing capital outlay to maintain their fiscal stability," Crisil said in a report quoting Director Aditya Jhaver. Last fiscal year, the capital outlay grew a meagre 6% on year as revenue deficit ballooned almost 90% on year. "If this trend continues this fiscal, it could constrain states' capital outlay, which has a higher multiplier effect and can stimulate increased investment in the economy."

 

Welfare spending by state governments is expected to be 2% of their cumulative gross state domestic product in FY26. As a percentage of GSDP, expenditure on welfare schemes was at a similar level in FY25 as well, but it was 1.4-1.6?tween FY19 and FY24, the report said. 

 

Revenue expenditure by state governments on social welfare encompasses expenses essential for the welfare of backward classes, women, children and labour, as well as assistance to certain demographics in the form of social security pension, as per the taxonomy of state government budgets.

 

In absolute terms, the social spending is projcted to rise by INR 2.3 trillion in FY26, of which INR 1 trillion is towards direct benefit transfers to women primarily as election commitments, the report said quoting Crisil Ratings Senior Director Anuj Sethi. 

 

In 2024, the governments of several election-bound states announced cash handout schemes for women, including Maharashtra's 'Majhi Ladki Bahin Yojana', Haryana's 'Lado Laxmi Yojana', Jharkhand's 'Maiya Samman Yojana'. Under the schemes, state governments provide financial assistance to eligible women through monthly transfers of INR 1,000-INR 1,500 to their bank accounts. 

 

With elections coming up in other states, a rise in direct benefit transfers, as part of election commitments, is possible and remains a key monitorable, the report said. Bihar, West Bengal, Assam, Kerala, and Tamil Nadu are some of the states with elections on the horizon.  End  

 

Reported by Krity Ambey

Edited by Avishek Dutta

 

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