It looks like Prime Minister Narendra Modi’s ‘freebie culture’ taunt on opposition-ruled states has barely had any impact. Most continue to invest heavily in welfare measures. A recent Crisil report says social welfare spending in 11 big states has hit a 10- year high of Rs 4 lakh crore. According to the credit rating firm, social welfare spending refers to disbursements through direct transfers, cash incentives, and the distribution of personal or household goods, excluding expenditures for education, agriculture, public health, and such, which are budgeted separately.
Several state governments have raised their spending on social welfare and public health post-pandemic for apparent reasons. For instance, in Tamil Nadu, where social welfare schemes are said to be a hallmark of Dravidian politics, the DMK-led government has launched a cash transfer programme called ‘Magalir Urimai Thogai’ to provide Rs 1,000 per month to women in eligible households. The government hopes to help nearly one crore women in TN with the monthly aid. The government has also expanded the breakfast scheme across the state to ensure no child attends school hungry.
While such schemes are indeed helping the people from the bottom of the pyramid, some state governments are reeling under a big pile of debt. Tamil Nadu has the highest outstanding debt among all states and union territories. As per budget estimates for 2022–23, it stands at Rs 7.54 lakh crore, followed by UP at Rs 7.10 lakh crore, according to the Union finance minister.
On the flip side, there is some startling data. The total debt accumulated by state governments and UTs has reached a record high during the last financial year, with states like TN, UP, Maharashtra, and West Bengal, among others, going on a fund-raising spree. TN saw its debt increase to Rs 7,53,860 crore during 2022–23 (budget estimate), compared to Rs 6,56,626 crore (revised estimate) during the previous financial year. UP’s debt rose to Rs 7,10,210 crore in 2022–23. Some state governments are already struggling to wriggle out of the debt trap. What is alarming is that the expenditure towards salaries, pensions, and interest payments, which currently account for 45–47% of revenue expenditure, is growing fast. So, it is essential that states generate additional revenues, attract private capital, and boost capital expenditure. Failing to do so, they will end up in a debt trap.
