New Delhi [India], September 29 : The last two decades have shown that states' spending usually picks up after elections, with revenue expenditure turning out to be the most prominent driver, according to a report by Emkay Research.
The report noted that the last couple of years have been heavy with state elections, as 10 major states went to polls during this time. Almost each of these states introduced new freebie schemes, especially for women, regardless of party lines. Such schemes have proven to be a strong election-winning strategy and have become a common feature across states.
It stated "The last 20 years have seen states' spending usually picking up post-elections.... Almost each of these states introduced new freebie schemes (especially for women), regardless of party lines, as such schemes have proven to be an election-winning strategy"
An analysis in the report of 19 major states over the past 20 years showed that on average, a state's revenue expenditure rises by 0.3 per cent of GSDP in the year immediately after an election.
Capital expenditure also rises by 0.2 per cent of GSDP, though this is largely a catch-up as it tends to fall in the lead-up to polls. The fiscal deficit, however, remains unchanged during this period.
The report said this trend highlights how revenue expenditure, especially in the form of freebies, has a sticky nature. It becomes difficult to cut welfare or freebie programs once they are launched, while spending also increases due to new programs introduced by a fresh ruling dispensation.
Looking at the recent cycle, the report shared that 10 major states went to polls in the last two years, five in FY24 and five in FY25. On average, these states saw fiscal deficit-to-GDP rise by 1 percentage point in the election year compared to the previous year, and then remain flat in the following year.
Revenue expenditure-to-GDP rose by 0.3 percentage point in the election year, with a further increase of 0.6 percentage point in the year after the polls, reinforcing the sticky nature of welfare and freebie spending.
Capital expenditure-to-GDP, on the other hand, stayed flat in the election year but rose by 0.4 percentage point a year later.
States had rationalized capex in election years to prioritize revenue spending, with capex then witnessing a catch-up in the subsequent year, the report said.
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