Investment vs Indulgence: Fiscal Stakes Of Elections

With the suspension of the US-Iran war, as the world heaves a sigh of relief, hoping the fragile truce would hold and coagulate into a durable peace, back home, we may shift our focus to domestic politics and governance—factors more in our control than global conflict. This is a year of multiple elections—eureka—which one isn’t?

Well, several states go to polls in 2026: Kerala, Assam, West Bengal, Tamil Nadu, and Uttarakhand early next year, along with, of course, the mother of all state elections—Uttar Pradesh. There has been a crucial talking point in SIR (Special Intensive Review) of electoral rolls; that apart, political parties, as in the past, are jostling to garner votes on religion, caste, parochialism, and populism. The natural casualties of identity and freebie politics are the social fabric and the economy.

Focusing on economic management is often the first and most crucial element of statecraft. One advantage of economic analysis is that it is backed by empirical data. The total annual government expenditure in India—centre, state, and local government combined—is close to 90 lakh crores. An interesting trivia: factoring in devolution from the central government, state and local governments cumulatively spend almost 60 lakh crores.

We know that the third tier of governance—local government or municipal corporations—is directly controlled by the respective state governments; so, the bulk of heavy lifting in terms of expenditure outlay is really the responsibility and discretion of state governments. Of the total government outlay, over 8.00 lakh crores is spent on what can be classified as "freebie" expenses: free ration, cash transfer, farm loan waiver, and agriculture subsidy. This does not include expenditure on human development: education and health care.

Is this expense on free hand-outs, as a percentage of overall expenditure, disproportionate—especially in light of examples of developed nations? The short answer is no. All first-world countries have their own variant of giving for free. They may call it social security, but the concept isn’t alien.

The fundamental difference, though, is that in the developed world, typically such expenses are institutionalised and part of a social contract, whereas in India, they are discretionary, flowing from competing populism due to election pressure. The manner of expense varies, too. For rampant farm loan waivers in India, the equivalent in America is subsidised crop insurance and low-interest-rate borrowings. Brazil, a comparable economy, does conditional cash transfer, linking it with school attendance rates and vaccination.

While these populist support measures are always taxpayer-funded, in several overseas examples, they are packaged as risk management tools or social compacts with better delivery mechanisms. The idea of a welfare state isn’t new or unique. What we need to reflect on, though, is whether we are doing enough to transition from a welfare to an opportunity state.

It is simple arithmetic that to achieve developed status by 2047, our economy needs to grow at least 8% per annum for the next two decades. Our perspective should align with the productive welfare school of thought, where fiscal priority must shift from consumption-led subsidies to capability-building investments. Economists say every rupee spent on infrastructure and human development has a multiplier effect of 2.5–4.0 on GDP; money spent on free distribution contributes 0.9.

Support expenditure is a social and moral imperative, but sustainable governance requires a focus on infrastructure, education, health, sanitation, law and order. Are elections contested on these planks and, importantly, are our voters prioritising these issues? How long will the overarching theme in hustings revolve around subaltern politics, sub-nationalism, and populism?

Aiding the underprivileged is necessary, but the eventual aim has to be to slowly but gradually wean off reliance on any assistance. Self-reliance is desirable not just at the macro national level, but also at the micro individual level. Don’t give fish to the hungry; teach them how to fish.

Our policymakers may disagree on various issues; however, some kind of national consensus on the fundamentals of economics must be worked out. Moreover, we the people have to contribute to making electoral politics development-centric. It is an exalted notion to redeem years of inequity. Equality is a constitutional principle; let’s ponder, though: equal income or equal opportunity? What are we targeting?

We erroneously conflate social justice with socialism. Social justice is ennobling; socialism deserves to be defenestrated. Equity is our end, but the means to that end cannot be through a failed model. Let’s not forget: capitalism makes, socialism takes.

(Note: The writer is the Managing Editor of Dainik Jagran.)