The Reserve Bank of India (RBI) has cautioned state governments against excessive pre-election spending; highlighting the risks it poses to macroeconomic stability and fiscal discipline.

Pre-Election Populist Spending

• It refers to government expenditure undertaken shortly before elections with the primary aim of gaining political support, rather than addressing long-term economic or developmental needs.
• It includes subsidies, free goods or services (Freebies), DBT schemes like Ladki Bahin Yojana (Maharashtra), Mukhyamantri Mahila Rojgar Yojana (Bihar) etc. targeting voters.
• Around ₹68,000 crore was spent by state governments across 8 major state elections (2023–25) on populist welfare schemes.
  • Bihar (2025) disbursed 32.48% of its tax revenue in various schemes just before elections.

Impact on State Economy

• Fiscal Stress: Leads to higher fiscal deficits and increased borrowing by the government.
• Inflationary Pressure: Excessive spending can increase demand, pushing prices up.
• Debt Burden: Short-term populist measures often result in higher public debt, affecting future budgets. E.g., Punjab’s debt to touch 3.74 lakh crore by the end of 2024-25.
• Resource Misallocation: Diverts funds from essential development projects and long-term welfare programs.