Rising Subsidy Expenditure puts Capital Expenditure on the backburner
In the fiscal year 2023, states in India have witnessed a concerning trend. While capital spending has slowed down, expenditure on subsidies has surged at an alarming rate. A comprehensive analysis of the spending patterns of 20 states conducted by Financial Express has revealed that the bill for subsidies has outpaced capital expenditure in some regions. This trend is a matter of grave concern, especially considering that these states contribute to 90% of the country's gross domestic product (GDP).
The report highlights that expenditure on subsidies, including items that can be classified as "freebies," grew by 19% to reach a staggering amount of ₹2.8 trillion in FY23. This growth rate surpassed the 16% increase witnessed in the previous year. However, capital expenditure growth remained stagnant in FY23, hovering around ₹4.82 trillion (excluding central capex support), which pales in comparison to the 29% growth observed in FY22.
The situation is particularly dire in three states: Punjab, Rajasthan, and Haryana, where spending on subsidies has exceeded capital expenditure between FY21 and FY23. Punjab, despite its precarious financial condition in FY23, spent ₹20,607 crores on subsidies, three times its capex of ₹6,720 crore. The primary focus of this largesse was providing free power to households and farmers. Notably, Punjab also had the highest debt-to-GSDP ratio in the country, reaching approximately 48% in FY23.
Maharashtra emerged as the highest spender on subsidies in absolute terms, with ₹43,149 crores disbursed in FY23 (compared to ₹61,591 crores on capex), closely followed by Tamil Nadu, which spent ₹29,557 crores on subsidies (₹38,732 crores on CapEx). Maharashtra's subsidy spending is expected to rise further, as the state has announced a plan to provide ₹6,000 to each farmer's household in FY24.
The Congress party, which recently assumed power in Karnataka, pledged various freebies that analysts estimate could cost the state exchequer up to ₹40,000 crores annually. These include 200 units of free power to all households, ₹2,000 monthly assistance to the female head of every family, ₹3,000 monthly allowances for unemployed youth with a graduate degree, and free bus travel for women. Surprisingly, Karnataka reported no expenditure on subsidies until FY23, according to CAG data.
In conclusion, the rising trend of subsidy expenditure outpacing capital spending among states is a matter of concern. Freebies free citizens from the shackles of hunger, poverty, and destitution and political parties from doing constructive work. While subsidies can provide immediate relief, the neglect of capital expenditure hampers long-term economic growth and stability. States must prioritize responsible financial management, strike a balance between subsidies and capital investment, and explore alternative revenue sources to ensure sustainable development. The central government should provide guidance and support to states in fostering prudent fiscal practices. It is essential to address this issue collectively to secure a prosperous future for the nation.
