Reeling from a crushing defeat in the Lok Sabha elections, the BJP alliance government in Maharashtra made a thunderous declaration in its last Budget. With a flourish, Finance Minister Ajit Pawar presented a mammoth ₹6,12,293-crore Budget, which included a bold promise: three free LPG cylinders a year for BPL families, free electricity for the State’s farmers, and ₹1,500 a month for women under the CM Ladki Bahin Yojana (CM’s beloved sister scheme). Now, this scheme has become the focal point in the BJP-led alliances’ State election campaign.
The generosity does not come cheap. The scheme alone carries a staggering annual price tag of ₹46,000 crore — a move that defies the Finance Department’s caution and sends shivers through the corridors of fiscal prudence. Adding fuel to the fire, Chief Minister Eknath Shinde has upped the stakes further, promising ₹2,100 per month for women under the same scheme if the BJP alliance secures victory in the upcoming election.
And the opposition is not about to be outdone. The Congress-led alliance has joined the fray, vowing an even more tantalising handout: ₹3,000 for women under their proposed Mahalaxmi Yojana along with more freebies for voters.
Competitive populism
Maharashtra’s election battleground has turned into a spectacle of competitive populism, with each party outbidding the other in a race to shower the public with promises of lavish giveaways. Yet, beneath the surface, the State’s fiscal numbers flash urgent warnings. The projected revenue deficit stands at ₹20,151 crore, while the budgeted fiscal deficit is a daunting ₹1,10,355 crore for FY25. Fiscal deficit almost doubled in FY24, rising from 1.9 per cent of GDP in FY23 to 2.8 per cent of GDP in FY24. While it is still within the FRBM limit, the sudden expansion is a cause for worry.
Debt stock
The State’s debt stock for 2023-24 (RE) is ₹7,11,278 crore with annual interest payments of ₹48,578 crore. Although the State’s debt stock increased 16.5 per cent in 2023-24 (RE) over the previous year, the government defends this by saying that its percentage of the GSDP (17.6 per cent) is well within the prescribed limit (25 per cent of GSDP) as per the ‘Medium Term Fiscal Policy, Fiscal Policy Strategy Statement And Disclosures For Maharashtra 2023-24’.
Fiscal deficit, capex
The overall trend from 2019-20 to 2024-25 suggests a cycle from a stable pre-pandemic phase, through the Covid-19 shock and recovery, to a potential phase of increased spending. The higher deficit levels in 2023-24 and 2024-25 raise questions about long-term fiscal sustainability, debt servicing and the potential impact on credit ratings. The fiscal deficit data implies that Maharashtra might be prioritising public spending, which, while potentially stimulating the economy, requires strong revenue strategies to prevent future fiscal imbalances.
The significant capital expenditure growth, particularly in 2023-24, coincides with an increased fiscal deficit, indicating that the state is funding these expenditures through borrowing or other financial means. This requires a careful balance to avoid long-term debt sustainability issues. The projected decline in 2024-25 may point to challenges such as revenue shortfalls, economic uncertainties, or a shift in focus towards other fiscal priorities, such as debt servicing or welfare spending.
CAG remarks
“The State government needs to monitor and manage its debt levels to ensure long-term fiscal stability by adopting remedial measures to rationalise expenditure, explore further sources, expand revenue base and invest in revenue-generating assets,” CAG 2023 report recommended. CAG suggested that the government may consider mobilising additional resources through tax and non-tax sources to move towards revenue-surplus status.