By KR Shanmugam
Last week, the Supreme Court called out the practice of political parties announcing handouts on the eve of elections. Not only are such indiscriminate largesse a burden on state finances, these may create dependency among beneficiaries and even crowd out capital expenditure, explains KR Shanmugam
Highlights
Rs 2.46 L-cr: Annual outlay for women-focused unconditional cash transfers in 15 states IN FY26
Essential welfare services for the poor differ fundamentally from indiscriminate largesse aimed at electoral gains
20% of GSDP is the CEILING for sustainable outstanding liabilities as per FRBM framework
Welfare policies vs freebies
Welfare policies are schemes carefully targeted at vulnerable and marginalised groups to enhance long-term employment prospects, and generate multiplier effects in the economy. But freebies are benefits distributed free of cost. Freebies include loan waivers, unconditional cash transfers, free transport, free electricity, free scooters or bicycles, free laptops, free televisions, and similar benefits. These measures often provide immediate relief or consumption gains but may not necessarily create sustainable long-term benefits. Many such schemes are universal in nature and are introduced primarily to attract voters, sometimes without adequate financial planning or credible revenue sources. This can lead to fiscal stress for state governments.
Since essential services such as education, healthcare, electricity, and public transport cannot be efficiently organised by individuals, citizens elect governments to provide them. How-ever, the extent to which such services should be provided free depends on a government’s fiscal space. Unlike indiscriminate giveaways, welfare schemes are usually backed by explicit budgetary allocations.
Rationale for freebies
Supporters argue that certain free provisions are necessary to reduce structural inequalities. Free foodgrains, healthcare services, and cash transfers have helped reduce malnutrition, prevent medical impoverishment, and provide social safety nets. According to NITI Aayog, free bicycle schemes for schoolgirls in Bihar and West Bengal increased enrol-ment, reduced dropouts, and improved educational outcomes. In the short term, freebies may also act as local economic stimuli. Proponents also point out that governments routinely extend tax concessions, loan write-offs, subsidised land, power, and capital incentives to industries and corporates. Targeted benefits for women, farmers, youth, and senior citizens also help build electoral coalitions while delivering measurable social assistance. Courts have observed that election promises of freebies cannot automatically be classified as bribery or corruption.
Announcements with eye on polls
Currently, 15 states operate unconditional cash transfer schemes for women under various names such as financial inclusion or empowerment programs. These include Telangana’s Mahalakshmi Scheme, Maharashtra’s Mukhyamantri Majhi LadkiBahin Yojana, Karnataka’s Gruha Lakshmi Yojana, West Bengal’s Lakshmi Bhandar Scheme and Tamil Nadu’s Kalaignar Magalir Urimai Thittam in. Although framed as empowerment initiatives, many of these were introduced before major elections, highlighting the growing political importance of women voters. During poll seasons, political parties frequently announce ambitious expenditure commitments. Parties in Tamil Nadu, for instance, have promised hike in monthly cash transfers for women, one-time household grants of `10,000, guaranteed ownership of motorcycles and permanent houses, and assured employment for at least one family member.
Handouts can be harmful
Critics argue that essential welfare services for the poor differ fundament-ally from indiscriminate largesse aimed at electoral gains. Excessive freebies may create dependency among beneficiar-ies, weakening the urge to work or pay taxes. Free power and loan waivers impose opportunity costs by diverting funds from education, healthcare, and employment generation. Free power can encourage overuse of groundwater and lead to resource depletion. Loan waivers may weaken banks and discoms by undermining repayment discipline. Moreover, universal cash transfers can fuel localised inflation if supply does not meet rising demand. In Poor Economics, economist Abhijit Banerjee highlights global examples where free goods are undervalued or poorly utilised. The Economic Survey (2025-26) observed that excessive focus on short-term gains may crowd out capital expenditure, diverting resources away from infrastructure and job creation.
Burden on state exchequer
Critics have described excessive welfare promises as “revdi culture,” cautioning these strain government finances and undermine sustainable growth. The annual outlay for women-focused unconditional cash transfers in 15 states reportedly touched `2.46 lakh crore in FY26. Budget estimates for FY26 show that in most states the fiscal deficit-to-GSDP ratio exceeds the 3% threshold, and outstanding liabilities often surpass 20% of GSDP — the sustainable level as per the Fiscal Responsibility and Budget Management (FRBM) framework. Many states also report revenue deficits. Data show that richer states often spend more per capita on subsidies than poorer states. In some cases, subsidy levels rise even as poverty declines, suggesting that electoral rivalry rather than economic necessity may drive allocation decisions. Financing of such schemes should rely on sustainable revenue sources rather than excessive borrowing, with strict adherence to FRBM limits.
The writer is former director, Madras School of Economics and consultant to the government of Tamil Nadu. Views are personal.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.