PM Narendra Modi's populism after India electoral setback puts public finances at risk

NEW DELHI: After reverses in the general election and facing possible losses in state polls this year, Indian Prime Minister Narendra Modi's coalition has stepped up cash handouts, debt waivers and other freebies, although he has previously criticised the policy.

The handouts by state governments and promises by opposition parties trying to match the largesse threaten to upset the fiscal balance in the world's most populous nation and disrupt spending on urban infrastructure and other development projects, analysts say.

Modi's Bharatiya Janata Party (BJP) lost its parliamentary majority in the April-June national election and has stayed in power with the help of fickle allies. Opinion polls predict it could lose provincial elections due in Maharashtra, Haryana, and Jammu and Kashmir later this year, while winning in Jharkhand state, which could further dent Modi's popularity.

Maharashtra, India's richest state and ruled by a BJP coalition, has raised its fiscal deficit target to 2.6% of state GDP for the current fiscal year from 2.3% in an interim budget in February. The latest budget has listed cash handouts for women and free electricity for some farmers that could cost it about 960 billion rupees ($11.45 billion) in total this fiscal year, or 2.2% of state GDP, according to research and investment firm Emkay Global.

The BJP-ruled Haryana has waived water dues for thousands of farmers, cut prices of cooking gas for millions of poor families and announced allowances for unemployed youth.

Inflation, unemployment and rural distress emerged as key issues in the general election and surveys show these remain uppermost ahead of the state elections.

"Although doles are not a new phenomenon, it is the prevalence of populist promises in this cycle across the political spectrum that is worrying," said Madhavi Arora, an economist at Emkay.

"The recent wave of populist spending across poll-bound states could upset the fine fiscal balancing act that had been playing out so far."

Opposition promises include free power to homes and monthly allowances to women.

Modi in the past has decried the practice.

"This culture of freebies is very dangerous for the development of the country," he said in 2022.

"The people following this culture will never build new expressways, airports or defence corridors for you. They feel that they can buy the people by distributing freebies to them. Together we have to defeat this approach and remove the freebies culture from the politics of the country."

Yashwant Deshmukh, founder of polling agency CVoter, said politicians will increasingly resort to freebies amid widening economic disparity, especially in the absence of emotive issues which helped the BJP in the 2019 national elections.

"The fiscal consequence of this culture is devastating, but there is a big yearning among the masses for such social welfarism," he said.