Opinion Welfare populism is not just a budgetary concern — it is a question of national economic stability
The choice before India is clear: Continue with fragmented welfare expansion that erodes fiscal health, or adopt a national framework that balances compassion with prudence, ensuring equity, stability, and sustainability
What India needs, therefore, is a National Welfare Policy grounded in shared principles of fiscal discipline, transparency, and continuity (Illustration by C R Sasikumar) Written by Sharique Hassan Manazir
India’s welfare landscape is caught in a paradox: States are aggressively expanding welfare schemes to gain political favour, often at the expense of fiscal prudence. Three patterns now define state-level welfare politics. First, state governments routinely announce new welfare schemes or enhance existing benefits, especially around election cycles, to broaden electoral appeal. Second, fiscal stress manifests in delayed payments to contractors, vendors, hospitals, and beneficiaries, developments that often appear isolated but reflect deeper structural strain. Third, state debt continues to rise, with widening fiscal deficits and deteriorating debt-to-GSDP ratios. Taken together, these trends offer a more accurate picture of states’ finances than routine political messaging. Notably, few state governments communicate these to citizens, as they offer little immediate electoral reward.
Across states, the pattern is largely the same: Delayed welfare-related reimbursements to stakeholders, mounting arrears, or inability to meet salary obligations, even as welfare promises continue to expand and pensions or subsidies remain unpaid. Telangana, Andhra Pradesh, Karnataka, Himachal Pradesh, and Punjab each reflect different facets of this fiscal strain. In Bihar, amid growing state debt, the pre-election direct benefit transfers and their impact on the election results are still a matter of political conversation.
These cases show how welfare expansion often results in arrears rather than sustained support, with limited attention to legacy debt or repayment plans. The burden is pushed onto future governments, at times forcing asset sales at discounted valuations. Viewed against per-capita income, the scale of indebtedness is stark: Punjab and Himachal Pradesh shoulder the burden of a debt-to-GSDP ratio of 45-47 per cent. Fiscally disciplined states such as Odisha and Gujarat are in a much better position.
A new layer has, however, recently entered this ecosystem: Consultancies advising state governments on “fiscal prudence” and “welfare optimisation”. These strategies claim to balance compassion with caution but often devolve into fiscal optics, selectively trimming or re-prioritising beneficiaries to project efficiency. Such moves may please political actors and consulting firms, but they risk diluting citizen-centricity, the core of public policy. It resembles paying the bill on an old credit card by opening a new one: The debt cycle persists, but the narrative changes.
In 2023, India’s combined government debt — Centre plus states — stood at around 81 per cent of GDP. States alone carry debt worth roughly 28 –30 per cent of their combined GSDP, excluding government-guaranteed loans and off-budget borrowings by state agencies and special purpose vehicles. States that aggressively expand welfare entitlements, particularly large health insurance schemes, tend to accumulate higher debt-to-GSDP ratios, a clear red flag. While the Centre carries a substantial portion of sovereign debt, the fiscal position of states increasingly shapes India’s overall financial credibility.
When states finance welfare programmes through State Development Loans (SDLs), they add to the supply of government bonds in the market. Higher supply pushes up yields, raising borrowing costs for states themselves. The effect does not remain confined to them: As investors demand higher returns on government debt more broadly, borrowing costs can rise even for the Centre, squeezing fiscal room for development spending. Persistent arrears, whether to contractors, hospitals, or welfare beneficiaries, further signal distress. Credit-rating agencies, multilateral lenders, and global investors assess India’s public debt as an integrated sovereign balance sheet, not as isolated state accounts. If governments continue adding liabilities through ambitious but underfunded schemes despite inherited backlogs, welfare beneficiaries eventually suffer service disruption, and both state and national risk profiles deteriorate. Conversely, abruptly curbing ongoing welfare schemes to manage debt or finance new promises can trigger long-term social and economic instability.
This is why welfare must be viewed not merely as a budgetary matter but as a question of national economic stability. Lessons from education policy are instructive. Education, like many welfare subjects, is on the concurrent list. Fragmentation once threatened equity and access, prompting interventions such as the Right to Education Act and, later, the National Education Policy 2020. These created a coherent framework of guiding principles without undermining state autonomy, ensuring a national baseline while preserving innovation.
What India needs, therefore, is a National Welfare Policy grounded in shared principles of fiscal discipline, transparency, and continuity. Such a framework should illuminate not only how many schemes a government launches or inherits, but also the additional debt they generate, whether that debt could have been avoided, and the long-term implications it carries. It must ensure that existing welfare schemes and citizens’ entitlements are not disrupted to manage debt or finance new promises simply because elections loom. The choice before India is clear: Continue with fragmented welfare expansion that erodes fiscal health, or adopt a national framework that balances compassion with prudence, ensuring equity, stability, and sustainability.
The writer is assistant professor of Public Policy at the Kautilya School of Public Policy, Hyderabad
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