What is a populist budget and why is it controversial?

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Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2025. It will be the eighth consecutive Budget to be presented by her and the second full Budget of Modi 3.0 government. But whether the FM will prioritise prudence over populism remains to be seen.

Sitharaman, while presenting the sixth Budget on February 1, 2024 just ahead of the Lok Sabha elections, ditched populism and instead stuck to the path of fiscal consolidation.

"Our track record speaks for us, we don't need populism. The Modi government is focused on empowerment and is not concerned with populist measures," the Finance Minister said on why she avoided populism in Interim Budget 2024.

A budget which is designed and presented keeping in mind the general and immediate concerns of the public and not the broader economic growth of the country is referred to as populist budget. In such a scenario, the government seeks to address the immediate needs of the public by implementing measures such as tax cuts, increased social spending or subsidies. Examples of these measures include farm loan waivers and tax reductions for lower income brackets.

While a populist budget can provide immediate relief to the public and short-term boost to the markets, it is not good for the country's long-term economic growth.

Populist budget can strain the government's finances and also augment the country's fiscal deficit. Hence, it is generally not considered to be good for the economy. This is also the reason why economic experts often criticise such budgets.

Critics as well as economists have time-and-again argued that populist budgets are frequently designed with an eye on political gains, focusing on securing higher votes rather than ensuring prudent economic management.

Policies like monetary expansion or subsidies often lead to mounting inflationary pressures, reducing the purchasing power of the currency and destabilizing the economy.