‘Freebie’ road to chaos

India’s states are charging headlong into a Rs 1.6 lakh crore cash transfer blitz for women in FY26, part of a broader Rs 2.75 lakh crore freebie spree.

By Athan Joshi

“This may be the decade when India’s fiscal war began.” History books might one day mark the 2020s as the era when Indian states, in a frenzied populist race, ignited a battle that could redefine the nation’s economic destiny. A Sanskrit subhashit warns, “Na tathā vināśo vidyate yathā ati-vyayaḥ” (न तथा विनाशो विद्यते यथा अति-व्ययः), meaning, “There is no destruction as severe as excessive spending.” Yet, India’s states are charging headlong into a Rs 1.6 lakh crore cash transfer blitz for women in FY26, part of a broader Rs 2.75 lakh crore freebie spree—from free power to bus travel—devouring up to 25 percent of state revenues. As the US moves towards a DOGE-driven fiscal restraint, India’s states are scripting a different saga, one that risks turning empowerment into ruin, oblivious to history’s stark lessons.

Short-term populism versus long-term stability

At the heart of this fiscal war is a clash of visions: short-term populist glory versus long-term economic stability. Maharashtra’s Rs 36,000 crore Mukhyamantri Majhi Ladki Bahin Yojana and Karnataka’s Rs 28,608 crore Gruha Lakshmi Scheme lead the charge, with West Bengal (Rs 26,000 crore), Madhya Pradesh (Rs 18,984 crore) and others following suit. These schemes, while empowering women, are a double-edged sword, slashing through state budgets with no exit strategy in sight. The allure is undeniable—AAP’s 2020 Delhi win, Congress’ 2023 Karnataka victory, BJP’s 2023 MP success and JMM’s 2024 Jharkhand triumph all rode on such guarantees. But this is a war of attrition, and history suggests these may be pyrrhic victories.

Ancient Rome’s Cura Annonae was the OG of freebies. Initially designed to stabilise food prices and support the poor, it quickly morphed into a political tool. Politicians like Gaius Gracchus expanded the dole to win favor, and Emperor Augustus institutionalised it, feeding over 200,000 citizens daily until its treasury buckled, contributing to the Empire’s 5th-century collapse. Fast-forward to Sri Lanka in 2022: populist subsidies, including cash handouts, created a severe crisis leading to fuel shortages and inflation soaring as high as 70 percent. Similarly, Greece's debt crisis in the 2010s stemmed from decades of welfare commitments, culminating in a €320 billion bailout and years of austerity. India’s states, with fiscal recklessness, are marching towards a similar precipice. States like West Bengal, Punjab and Himachal Pradesh are becoming basket cases. With 65-75 percent of their revenue receipts already consumed by committed expenditure and a further 20-25 percent now allocated to freebies, there are minimal funds for productive purposes.

Overview of cash transfer schemes for women

Also, the overall largesse’ misdirection amplifies the peril. Picture this: In Delhi, A couple—both retired government servants with hefty pensions and parents of a Singapore-based hedge fund manager worth $20 million—enjoy free power, a perk meant for the needy. In Bangalore, a tech couple earning Rs 2 crore annually exploits free power across their three-storeyed home’s separate meters. There are hundreds of thousands of such cases in every state draining resources and undermining the schemes’ intent.

A flawed bargain

Ahead of the upcoming state elections in Bihar, the RJD leader Tejaswi Yadav has already promised a monthly cash transfer of Rs 2,500, which is 50 percent of the state’s per capita income. The sociopolitical contract fuelling this war for votes mirrors a flawed bargain. States promise empowerment, banking on votes, as all political parties did, but create dependency traps, much like Rome’s grain dole. Inflation, fuelled by cash injections without supply-side growth, looms as a second-order blow, eroding purchasing power. Such schemes, while noble, outstrip India’s fiscal capacity, diverting funds from initiatives for sustainable economic growth. As the Nobel laureate Paul Samuelson famously said, “Good intentions do not guarantee good results.”

Change is in the air

A counteroffensive is both possible and urgently needed. Political attitudes in states are also slightly shifting. Telangana CM Revanth Reddy recently called for a nationwide discussion on the feasibility of welfare guarantees. An urgent regulation is needed to curb reckless pre-election promises by political parties. States also need to cap such freebies at some single digit percentage of revenue ex-borrowings phasing them out as incomes rise, unlike Rome’s endless dole. The RBI’s 2022 fiscal guidelines urge restraint, and the 2025 Union Budget’s 56.1 percent debt-to-GDP target by 2026-27 offers a blueprint. The central government imposing borrowing limits on states helps.

Every rupee spent on these populist schemes has an opportunity cost—it could have been used for infrastructure, education, or healthcare, investments that yield long-term economic dividends.  Rome fell, Greece buckled, and Sri Lanka collapsed - not merely because of debt but because of how they chose to spend it. This battle, fought in state budgets, may define India’s economic future. Pragmatism must take precedence, or unchecked populist measures in states will severely undermine the march towards Viksit Bharat 2047.

(Athan Joshi is a Sophomore at Los Altos High School with interest in politics, economics and business.)

Views are personal and do not represent the stand of this publication.