NDA’s big wins and freebie politics:Bihar becomes extreme case of populist spending with fiscal deficit at 6% of state’s GDP

The NDA’s sweeping victory in the Bihar elections—with more than 200 seats—has brought renewed focus on a worrying trend: the rapid rise of freebie-driven politics and the cost it imposes on already fragile state finances. Two factors played a decisive role in the landslide: direct cash grants and an unprecedented surge in female voter turnout, the highest Bihar has ever recorded. The ₹10,000 cash transfer for women was central to this mobilisation, underlining once again how welfare payouts are becoming deeply woven into electoral strategy across states. Costly Pre-Poll Schemes Raise Fiscal Red Flags The women’s grant was just one among several large schemes unveiled in the run-up to the elections. Madhavi Arora, Chief Economist at Emkay Global, warned that even a partial look at the major schemes reveals how fiscally damaging they may be. “The outlay on these schemes could exceed ₹40,000 crore in FY26 alone—almost 4% of Bihar’s GDP. For context, this is more than the state’s entire budgeted capital expenditure for FY26.” — Madhavi Arora, Emkay Global The concern is not new, but Bihar’s scale of spending intensifies the debate about how much fiscal slippage states can afford, especially those already struggling with weak revenues. States Falling Into the Freebie Trap – A Nationwide Trend Bihar is only the latest example in a growing list of states embracing populist, high-cost programmes despite their fiscal constraints. Analysts at Emkay Global note that even states traditionally considered fiscally prudent have now joined the bandwagon. Maharashtra’s fiscal deficit-to-GDP ratio rose by 40 bps last year after launching the “Ladki Bahin” scheme. Odisha’s deficit jumped by 100 bps, with its FY26 budget projecting a fiscal deficit above 3%, compared to just 1.7% in FY24. These trends show that freebie politics is no longer limited to financially weaker states—it is becoming politically irresistible across the board. Bihar’s Fiscal Position Already Under Severe Stress Unlike Maharashtra or Odisha, Bihar starts from a significantly weaker fiscal base. Emkay highlights that: Bihar’s FY25 provisional fiscal deficit was 6% of GDP—one of the highest among major states. For FY26, the state has budgeted a sharp correction to 3%, based on an unrealistic assumption of 22% nominal GDP growth. Yet, by August itself, the FY26 fiscal deficit had already reached 27% of the full-year target, signalling more slippage ahead. Making matters tougher, Bihar depends overwhelmingly on the Centre for revenue—over 70% of its FY25 income came from tax devolution and grants. With limited own revenue and rising subsidy commitments, the state’s fiscal space is shrinking quickly. Populist Spending to Intensify With More Elections Ahead With Tamil Nadu, Kerala, and crucially West Bengal heading into elections next year, analysts expect the competitive populism to escalate further. According to Emkay: “States’ subsidy and freebie spending will continue to push fiscal deficits higher. The earlier ‘ceiling’ of 3% FD/GSDP has effectively become the floor, and after two consecutive years of 3%+ deficits, we do not expect consolidation anytime soon.” In short, freebies may deliver electoral victories, but they are hollowing out state finances—and the Bihar mandate suggests the trend is set to worsen, not reverse.