Lavish spending by Indian state governments on freebies has historically attracted voters, but that means trading off a good standard of living.
“Free things are never free… When parties propose schemes, they need to make the financing and such trade-offs clear to voters. This will reduce the temptation towards competitive populism,” he said. Ashima Goyal, Member, Monetary Policy Committee, Reserve Bank of India (RBI). told PTI Tomorrow (August 21).
Such freebies and subsidies translate into less capital expenditure on health, education and other critical needs, he said.
“Making the amount of subsidies to ensure that only the deserving receive them will free up resources to invest in health, education, agriculture, R&D, and rural infrastructure, creating more jobs and It will help reduce poverty on a sustainable basis.” RBI report (PDF) said.
On the other hand, careless muftis incur huge indirect costs and damage the state finances. In this financial year, various state governments in India have already announced the shutdown. 1 Lakh Crore Rs ($12.5 billion) worth of welfare schemes and subsidies.
The theory of good and bad subsidies
Only States with revenue surplus. According to KR Shanmugam, director of the Madras School of Economics, free and subsidized are essential.
In 2021-22, however, only 11 of the 28 Indian states recorded surplus revenue.
Shanmugam also called for a distinction between good and bad subsidies. “Good ones don’t affect other sectors, creating price distortions, while exaggerating the target population…Bad subsidies negatively impact other sectors.” He told IANS.
More than half of state spending is already fixed.
Expenditure on gratuities should be between 0.1%-2% of states’ GDP.
However, some states face a serious problem: subsidies provided by highly indebted states such as Andhra Pradesh, Madhya Pradesh, and Punjab cost 14.1%, 10.8%, and 17.8% of their revenue collections, respectively. .
By including fixed costs such as interest costs on salaries, pensions, and subsidies, 16 states have Total costs eat into 56% Their earnings in FY 2022-23, suggested a note by SBI Research. This is 54.7% higher than the previous financial year.
In such a situation, states generally tend to borrow more, further adding to their own fiscal burden.