Price of populism: Freebies pushing state to the brink of financial collapse

Despite the financial crisis in Himachal Pradesh, political parties in Haryana and Delhi continued to offer a slew of freebies during the recent Assembly elections. From free electricity and bus travel for women to cash allowances and subsidised gas cylinders, parties across the spectrum competed in making populist promises.

Ironically, the BJP, which once criticised the culture of freebies as “revdi”, also embraced it in the recent elections. This shift highlights how even ruling parties are now indulging in short-term populism, despite its long-term economic consequences.

Himachal Pradesh serves as a cautionary tale. The state’’s financial health has deteriorated significantly due to unchecked freebies. The Congress government, which promised Rs 1,500 per month to every woman and 300 units of free electricity, has failed to deliver on these commitments due to financial constraints. Meanwhile, the state’s debt burden continues to rise, forcing it to rely heavily on borrowings.

A major contributor to Himachal’s financial crisis is its growing expenditure on salaries, pensions and subsidies. With limited revenue sources, the state has been forced to take loans to meet its financial obligations. When the Congress government assumed power on December 11, 2022, it inherited a debt of Rs 75,000 crore from the previous BJP government, along with liabilities of Rs 10,000 crore for government employees. Over the past two years, the state has borrowed Rs 27,000 crore just to service past debts.

The state’’s fiscal deficit, which stood at 3.5% of the Gross State Domestic Product (GSDP) in 2019-20, jumped to 6.5% in 2022-23. In 2023-24, the deficit was revised further upward to 5.9%. These figures highlight the unsustainable financial trajectory caused by excessive poll promises and limited fiscal discipline.

Recognising the crisis, Chief Minister Sukhvinder Singh Sukhu’s government has taken steps to enforce fiscal discipline. Measures include rationalising subsidies, adjusting salary release dates and revoking the pensions of disqualified legislators. While these steps are seen as necessary, the broader challenge remains—balancing political commitments with economic sustainability.

The ongoing trend of freebie politics may win elections, but it is turning into bad economics. Unless states adopt a more responsible fiscal approach, they risk deeper financial instability, forcing them to withdraw their promises and further eroding public trust.