Amit Pandey
The Indian economy is at a crossroads, grappling with structural challenges exacerbated by a growing culture of freebies. While political parties continue to use largesse as an electoral tool, economists warn that such schemes are becoming a financial burden, leading to fiscal mismanagement at both central and state levels. The recently tabled state budgets reflect this troubling trend, allocating significant funds for free water, electricity, rations, and health schemes while neglecting crucial investments in infrastructure, education, and industrial growth. The fundamental question is: how can a country sustain long-term development when its fiscal policies prioritize immediate political gains over economic stability?
Maharashtra’s temporary halt of the Ladli Bahana scheme due to financial strain and Jharkhand’s decision to hand over the scrutiny of the Maiya Samman scheme to local administration highlight a deeper crisis—governments are struggling to meet even their basic obligations. Employees across several states face delays in Dearness Allowance (DA) payments, exposing the financial distress within public sector management. Meanwhile, the Employees’ Provident Fund Organization (EPFO) has been unable to generate promised interest rates due to poor financial planning, raising concerns about the government’s ability to manage long-term liabilities.
This raises an even larger question: if governments cannot generate enough revenue to meet committed employee benefits and economic investments, what is the rationale behind excessive welfare spending? Financial institutions and economists have repeatedly cautioned against the unsustainable burden of freebies, yet state governments continue to disregard these warnings. The result is a weakening rupee in global markets, rising inflation, and increased reliance on borrowing. Should public welfare be driven by responsible fiscal planning, or will political compulsions continue to dictate economic decisions at the cost of India’s future growth?
Economic Load of Freebies
The financial burden of freebies on the economic structure is substantial. States allocate significant portions of their budgets to fund these schemes, often at the expense of critical sectors like healthcare, education, and infrastructure. For example, Andhra Pradesh’s budget for 2025-26 showed an alarming increase in public debt, largely due to the cost of welfare schemes. The state’s public debt is estimated to reach ₹1.02 lakh crore, with a significant portion attributed to freebies.
The Reserve Bank of India (RBI) has also raised concerns about the fiscal burden of subsidies and welfare schemes on state finances. Excessive spending on freebies can lead to fiscal distress, limiting the funds available for development projects and essential services. This misallocation of resources can hinder long-term economic growth and stability.
A closer look at BJP-ruled states shows significant allocations towards welfare schemes. For instance, in Uttar Pradesh, free ration distribution and direct benefit transfers (DBT) under various schemes account for a substantial portion of the state budget. Similarly, Madhya Pradesh has announced a large corpus for the Ladli Laxmi Yojana and other welfare programs. While these schemes provide social security, they also strain the state’s finances, leading to increased borrowings and delayed infrastructure projects.
In contrast, non-BJP states such as Tamil Nadu and West Bengal have announced freebies like free electricity, free bus rides for women, and cash incentives for students. The Tamil Nadu government’s budget for 2025-26 allocated over ₹50,000 crore to welfare schemes, raising concerns about its long-term fiscal sustainability. In West Bengal, the Kanyashree and Rupashree schemes have been expanded, further increasing financial pressure.
The issue of funding for freebies has been a contentious topic in Indian fiscal policy, with states resorting to different strategies to sustain welfare schemes. A detailed analysis of state-wise freebie expenditure in comparison to revenue and capital availability reveals stark contrasts between BJP-ruled and opposition-ruled states, raising concerns about long-term economic sustainability.
Andhra Pradesh, for instance, has committed nearly ₹60,000 crore annually to welfare schemes such as Amma Vodi and Rythu Bharosa, leading to an ever-widening fiscal deficit. In FY 2023-24, the state’s revenue receipts stood at approximately ₹1.48 lakh crore, whereas committed expenditures, including interest payments and freebie allocations, exceeded ₹1.90 lakh crore, forcing the state to rely heavily on borrowing. The state’s debt has surged beyond ₹4.5 lakh crore, leading to annual interest obligations of over ₹44,000 crore, effectively consuming a significant portion of revenue. Similarly, Punjab, struggling under free power subsidies for farmers and other welfare programs, has seen its debt-to-GDP ratio surpass 48%, with total liabilities exceeding ₹3 lakh crore. The interest burden alone is around ₹22,000 crore per year, and further borrowing has raised alarms about fiscal prudence.
Tamil Nadu’s Dravidian model of governance has long been dependent on welfare measures, and the current government has allocated approximately ₹43,000 crore for various schemes, including free electricity for households and farm sector subsidies. However, its total revenue receipts stand at around ₹2.6 lakh crore, with a fiscal deficit touching ₹90,000 crore. As a result, over 70% of the state’s borrowings are used for debt servicing. Similarly, West Bengal has directed more than ₹40,000 crore toward welfare measures while managing a revenue receipt of ₹2.34 lakh crore. The state’s outstanding debt has climbed past ₹6 lakh crore, making it one of the highest indebted states in India.
In contrast, BJP-ruled states have attempted to balance welfare spending with fiscal discipline. Uttar Pradesh, with a revenue of over ₹6.2 lakh crore, has allocated ₹50,000 crore towards free ration and direct benefit transfers (DBTs) while maintaining a fiscal deficit of 4.3% of GSDP, lower than opposition-ruled states. Gujarat, with a revenue of ₹2.65 lakh crore, has earmarked ₹20,000 crore for welfare schemes while keeping its debt burden at a manageable level, ensuring that capital expenditure is not compromised. The reliance on central assistance in BJP states helps mitigate the fiscal stress, with schemes like PM-KISAN and Ayushman Bharat being major contributors.
Economists like Dr. R. Nagarajan from the National Institute of Public Finance and Policy highlight that while welfare schemes are essential for social security, unchecked freebie culture leads to severe financial imbalances. “Borrowing to fund recurring expenditures is unsustainable. Many states are sacrificing capital investments in infrastructure, education, and healthcare to sustain freebies, which will slow down long-term economic growth,” he warns.
The future impact of excessive freebie spending is likely to be detrimental to the next generation. High debt levels reduce states’ ability to invest in productive sectors, leading to lower job creation and economic stagnation. Moreover, future governments will be left with fewer fiscal options, forcing them to either increase taxes or cut essential services. If unchecked, this trend may push states toward financial crises similar to what has been observed in Sri Lanka and Pakistan, where reckless populism led to severe economic distress. A structured approach that prioritizes targeted welfare over blanket freebies is necessary to ensure fiscal sustainability.
Impact on the Indian Economy
The culture of freebies has several adverse effects on the Indian economy. Firstly, it creates a dependency culture, where citizens rely on government handouts rather than seeking employment or entrepreneurial opportunities. This can shrink the labor force and reduce overall productivity. Secondly, the diversion of funds from essential services to freebies can lead to a decline in the quality of public services, affecting healthcare, education, and infrastructure development.
Additionally, the fiscal burden of freebies can lead to increased public debt and interest payments, limiting the funds available for development projects. This can hinder long-term economic growth and stability. The impact on the Indian currency in the global market is also a concern, as excessive spending on freebies can lead to inflation and a decline in the value of the rupee.
While BJP states have tried to balance welfare with economic prudence, the increasing dependency on subsidies is leading to fiscal stress. On the other hand, non-BJP states with higher welfare commitments face a greater risk of financial instability. The combined debt of states like Punjab, West Bengal, and Tamil Nadu has seen a sharp rise, with little scope for revenue generation to offset these expenses.
The concept of freebies as a means of social welfare has sparked significant debate in India’s fiscal policy, with concerns over long-term economic sustainability. While welfare measures offer immediate relief to citizens, their unchecked expansion often leads to financial distress for states. A detailed economic assessment shows that excessive reliance on subsidies and debt-driven welfare schemes can weaken fiscal health, compromise essential investments, and burden future generations.
Many Indian states are already experiencing the fiscal repercussions of extensive freebie culture. Punjab, for instance, has a total debt burden exceeding ₹3 lakh crore, with an interest obligation of around ₹22,000 crore annually. The state provides free electricity to farmers at an annual cost of ₹7,200 crore, despite struggling to meet basic revenue targets. Andhra Pradesh, spending ₹60,000 crore on welfare schemes while managing annual revenues of ₹1.48 lakh crore, faces a similar crisis. The state’s fiscal deficit exceeds ₹40,000 crore, forcing it to rely on borrowing, pushing its debt beyond ₹4.5 lakh crore. West Bengal, with outstanding liabilities of over ₹6 lakh crore, continues to expand its social schemes, leading to a debt-to-GSDP ratio of nearly 38%, among the highest in India.
BJP-ruled states also spend on welfare, but they balance it with targeted investments. Uttar Pradesh, with a revenue base of ₹6.2 lakh crore, spends around ₹50,000 crore on welfare but maintains fiscal discipline with a deficit at 4.3% of GSDP. Gujarat, with a revenue of ₹2.65 lakh crore, allocates ₹20,000 crore for social schemes while ensuring capital expenditure remains a priority. This model helps sustain development without excessive dependence on debt.
Globally, European countries have faced similar challenges and taken corrective measures. Sweden, known for its strong welfare state, funds its social benefits through high direct taxes, ensuring a self-sustaining model. Germany’s Hartz reforms in the early 2000s reduced unemployment benefits and redirected funds toward skill development and employment generation. The United Kingdom, in response to growing welfare dependence, implemented welfare-to-work programs that encouraged economic participation rather than long-term reliance on subsidies.
Economists caution that India’s excessive freebie culture could lead to severe economic distress if left unchecked. Dr. Raghuram Rajan has warned that populist spending, without revenue backing, could create a fiscal imbalance similar to the financial crises seen in Latin America. The Reserve Bank of India has already flagged concerns over rising state debts, urging fiscal prudence.
For India to achieve long-term growth, states must transition from populist handouts to sustainable economic policies. Prioritizing infrastructure, healthcare, education, and employment generation over blanket subsidies will ensure a financially stable future. Without such measures, the next generation may inherit a debt-ridden economy with limited avenues for development.
(Author is Managing Editor of The Emerging World)
