No money left for development in states after ‘freebies’:80% of earnings spent on salary, pension free schemes; Rajasthan Punjab need loans to repay debts, Bihar on verge of bankruptcy

Free schemes and subsidies, often known as ‘freebies’ have been known to be a recipe for winning elections in state elections, but now this has become a major problem for the declining state economies. According to reports, states are not able to provide money for electricity, roads, and housing. After providing funds for subsidies, salaries, pensions, and interest payments, states are often left with only 20-25% of their total earnings. READ MORE | Top 5 private banks with highest interest on fixed deposits Condition of Punjab Punjab was left with only 7% of the amount for managing its expenditure. The state also has to repay a principal amount of ₹90,000 crore this year, hence, Punjab will need a huge loan to repay that amount. Meanwhile, Punjab has already borrowed ₹20,000 crore from the market in October this year. Financial status of Rajasthan Other than Punjab, the northern state of Rajasthan also has to repay a principal amount of ₹1.50 lakh crore this year. Rajasthan has borrowed ₹32,000 crore, but the outstanding amount is even more than its borrowing limit. It will need to borrow even to repay its existing loans. Bihar May Go Bankrupt in Fulfilling Electoral Promises The debt of states like Madhya Pradesh, Rajasthan, Punjab, and Bihar is about one-third or more compared to their GDP. In such a situation, the burden of principal repayment on them may increase further in the coming years. The burden of fulfilling electoral promises in Bihar could be 25 times the state’s capital expenditure, showcasing a possible bankruptcy. A large part of the earnings of big states like Maharashtra and Karnataka go only into salaries, pensions, and other essential expenses. Only a small amount is available for development. In Rajasthan and several other states, 45 gigawatts of solar and wind energy capacity are stalled because governments are unable to even sign power purchase agreements. READ MORE | ₹24,000 monthly SIP can grow into ₹6 crore All Distressed: Interest Burden on Bengal Exceeds Education Budget, Debt on MP is Rising Relief is possible only by discontinuing old government schemes Retired IAS and State Finance expert Ajit Kesari states that while announcing free schemes or subsidies, it is important to assess the available income resources. Governments that come to power with new schemes often do not discontinue the schemes of the old government. According to Ajit Kesari, the government fears that people might get angry. The Assam government had abolished the old government’s schemes. If other governments also take such steps, some burden can be reduced.