Rising cash subsidies and Power Debt will cast long fiscal shadow on state’s impending budget

It is within this framework that the Commission’s observations assume relevance ahead of the Maharashtra Maha Yuti’s second budget that would be presented by CM Fadnavis on March 6.

The Commission identified large-group unconditional cash transfers as the fastest-growing component of State subsidies nationally. It noted that Maharashtra’s spending on such transfers which includes the dole given out under the Ladki Bahin Scheme rose from 0.6 per cent of total revenue expenditure in 2023–24 to 6.2 per cent in 2025–26 (Budget Estimates), the second-largest increase among major States after Jharkhand.

Nationally, such transfers recorded a trend growth of 53.6 per cent between 2018–19 and 2025–26 (BE), reaching Rs 1.96 lakh crore. Their share in total State subsidies rose from 3 per cent to 20.2 per cent over the same period.

“If major States continue to allocate rising proportions of revenue expenditures to large-group unconditional cash transfers, they will not only impose a significant burden on the States’ budgets but also destabilise their finances in the long run,” the Commission said.

In its concluding observations, the Commission warned that such schemes “have proliferated recently” and may continue to expand. “As the economy grows and more revenue becomes available, there is likely to be political pressure to increase benefits under existing schemes and/or launch new ones,” it said, cautioning that such expansion “could greatly undermine the future financial stability of States and the Union” and “bequeath an ever-shrinking fiscal space to successive governments.”

The report noted that once introduced, subsidies tend to become “committed” expenditure. It recommended that governments “establish mechanisms to review subsidies and transfers and include a sunset or exit clause in their implementation mechanisms.”

It further observed that such schemes can “crowd out capital expenditure and other critical expenditures related to the provision of basic services, such as education and health.”

Beyond welfare spending, the Commission has flagged structural stress in the power sector. Maharashtra’s State-run distribution companies saw their debt rise from Rs 35,197 crore in 2018-19 to Rs 84,171 crore in 2023-24 ,an increase of nearly Rs 49,000 crore, or about 139 per cent in five years.

The Commission observed that in eight States, including Maharashtra, “the growth in debt between 2018–19 and 2023–24 has outpaced their growth in revenues and assets, making the self-liquidation of debt unlikely.”

Nationally, accumulated losses of State-sector DISCOMs stood at Rs5.86 lakh crore in 2023–24, with 83 per cent concentrated in eight States. Total DISCOM debt rose from Rs 4.71 lakh crore in 2018–19 to Rs. 7.42 lakh crore.

The report attributed persistent stress to operational inefficiencies, including gaps between average cost of supply and average revenue realised, delays in tariff revisions, and weak billing and collection efficiency.

Given Maharashtra’s projected outstanding debt of nearly Rs 9.3 lakh crore, rising power-sector liabilities add to overall fiscal pressure if reforms do not stabilise operations.

The Commission also drew attention to State Public Sector Enterprises (SPSEs), noting that the infrastructure sector accounts for the largest share of accumulated losses among State enterprises nationally.

It cautioned that contingent liabilities arising from guarantees and off-budget borrowings may not immediately reflect in fiscal deficit numbers but can crystallise into direct liabilities over time.

“Resorting to financing of subsidies and transfers through off-budget borrowings, guarantees, or assignment of revenues is fiscally imprudent and induces opacity in their accounting,” the report said.