In recent years, election victories in India have increasingly been powered by the strategic use of freebies and cash handouts, raising questions about their affordability and long-term impact on the country’s states. These handouts, which have taken many forms over the years—from television sets and bicycles to gold ornaments—blur the line between genuine welfare policies and pre-election populism. The trend has evolved significantly, with cash transfers, particularly those aimed at women, emerging as a popular and effective method for political parties seeking to secure votes.
A recent example of this phenomenon is the sweeping electoral victory in Bihar, India’s poorest state, where an alliance led by Prime Minister Narendra Modi’s party credited part of its success to a cash handout of 10,000 rupees (approximately $112 or £85) distributed to women voters. The scheme reportedly contributed to a record turnout among women in the election, highlighting how targeted financial incentives can mobilize large sections of the electorate. Other states, such as Maharashtra, have seen similar women-centric financial support programs introduced by Modi’s party ahead of elections, while opposition parties have also pledged comparable schemes to attract votes.
The use of election freebies has drawn mixed reactions from economists and policymakers. Jean Drèze, a noted economist, supports such giveaways to some extent, arguing that while it is crucial to differentiate between “useful” and “wasteful” handouts, these promises made during elections are often the only way the poor can extract tangible benefits from political representatives. In this view, despite the potential for misuse, electoral handouts remain a critical tool for delivering welfare to marginalized populations.
However, Prime Minister Modi himself has previously criticized what he terms the “revdi culture,” likening election giveaways to the frivolous distribution of sweets—a metaphor for short-term, unsustainable populism. This concern has also been echoed by India’s Supreme Court, which in 2023 sought to curb the distribution of “irrational freebies” during elections. Despite such warnings, the practice remains widespread and continues to dominate the political landscape.
The core issue lies in the economic sustainability of these freebies, especially given the financial constraints faced by many Indian states. Research from Emkay Global, a brokerage firm, reveals that Bihar is under significant fiscal pressure, with a deficit equal to 6% of its gross domestic product (GDP)—a notably high figure. Despite this precarious financial position, Bihar announced pre-election schemes amounting to 4% of GDP, an amount exceeding its capital expenditure budget. This diversion of funds toward short-term giveaways means less investment in long-term, job-creating infrastructure projects that could foster sustainable development.
Bihar is just one example among many states indulging in election-driven populism. Emkay Global’s analysis indicates that even states traditionally regarded as fiscally prudent are now succumbing to the pressures of freebie economics. The mandated fiscal deficit ceiling of 3% of GDP, intended to limit excessive and unplanned spending, has effectively become a floor rather than a ceiling, with about 21 out of India’s 29 states reportedly exceeding this limit. The disproportionate costs linked to election-related expenditures are a key factor driving this fiscal slippage.
The unsustainability of such populism is further underscored by the experience of Maharashtra, where the BJP-led alliance’s “Ladki Bahin” (Beloved Sister) financial assistance scheme caused the state’s deficit to increase by 0.4%, forcing the government to roll back some of its promises once the elections concluded. This rollback illustrates the difficulty states face in maintaining fiscal discipline when electoral incentives push for costly and often impractical subsidies.
India’s central bank, the Reserve Bank of India (RBI), has also highlighted the growing subsidy burden on state finances as a significant emerging risk. Although the overall debt of Indian states decreased to about 28.5% of GDP by March 2024—a figure lower than in previous years—it remains well above the recommended threshold of 20%. The RBI’s 2024-25 report on state finances flags a sharp rise in subsidy expenditures, driven by farm loan waivers, free or subsidized services such as electricity for agriculture and households, transport, gas cylinders, and direct cash transfers to farmers, youth, and women.
The RBI warns that states must rationalize their subsidy spending to prevent it from crowding out more productive expenditures that are vital for long-term economic growth. This cautionary note comes at a time when private sector investment in new