Populism At Play

CONTRARY TO WAILS of democratic doom, India witnessed a massive democratic exercise in 2024. There was a General Election with 900 million registered voters and eight state Assembly elections. If one were to look for a festival of democracy, it would be tough if not impossible to find one that matches the one in India.

However, along with this demonstration of popular will, there is another aspect to this reality of India: the economic popu­lism that accompanies the democratic process. This time, these expenditures were breath-taking even by Indian standards. It is tough to disentangle the economic and political imperatives behind these expenditures that go under the rubric of welfare. But now the trend is unmistakably political. What makes the situation deeply concerning is that the taste for these huge and recurring expenditures has percolated to the level of individual states, entities with a much weaker revenue base compared to that of the Centre. But that’s where Indian politics stands.

India’s politics, as compared to the more homogenous Western democracies, is not based on class but multiple other cleavages like caste, religion, region, and language. Until 2014, these cleavages had been exploited by different political par­ties successfully. Most regional parties usually employed caste as a mobilisation device while a handful used religion. At the national level, only the United Progressive Alliance (UPA) had experimented with largescale schemes like MGNREGS to woo voters. But that trend began in 2007, when India had begun to experience 7 per cent-plus growth. It was possible to afford such expenditures even if the money could have been put to better uses. Regional and state-level parties did not have the ability or the wherewithal to design and implement these changes.

Come 2014, all this changed, for good and for bad. In that year, the first step towards direct benefit transfer (DBT) began to take shape. The use of technology and individual identification made it possible to cut off the thick, parasitical layer that would eat away these benefits with precious little getting through to the intended recipients. But even more importantly, welfare had the potential to end divisive politics that exploited social and politi­cal cleavages. In the next decade, the benefits of reducing identity politics and vastly increasing the reach of welfare were realised. It is this combination of technology and individual identification that made it possible to imagine women as a coherent voting bloc with its own characteristics.

That phase may be coming to an end. In the last two to three years many states have begun experiments with direct cash trans­fers to women. These sums range from ₹833 per month (Odisha) to ₹2,000 per month (Karnataka). In 2024-25, a group of nine states—Assam, Chhattisgarh, Delhi, Karnataka, Maharashtra, Madhya Pradesh, Odisha, Tamil Nadu, and West Bengal—have budgeted a sum of ₹1.02 lakh crore for direct cash transfers to women. This is in addition to states like Jharkhand that intro­duced a similar scheme earlier this year. (Data from State of State Finances report by PRS India, November 2024.)

I T IS INTERESTING to contrast these sums with other Centrally run schemes like MGNREGS (2024-25 budgeted outlay ₹86,000 crore), PM Kisan (2024-25 outlay ₹60,000 crore), PM Awas Yojana (rural) (2024-25 outlay ₹54,500 crore), PM Awas Yojana (urban) (2024-25 outlay ₹30,170 crore). Collectively, the budget of the nine states for cash transfers for women outstrip these individual, pan-Indian, schemes. The hit to the exchequer of these states is significant: on average, almost 11 per cent of the non-committed revenue of these states will be spent on such cash transfers. But two states, Karnataka and Maharashtra, skew these allocations. In Karnataka, 21 per cent of the state’s non-committed revenue will be spent on these transfers. This was bound to cramp its finances as has been clear from its attempts to shore up rev­enues by tinkering with a host of tariffs, expenditure re-jigging and even aggressive cutbacks elsewhere. In Maharashtra, the an­nual expenditure on the cash transfer scheme is expected to be a whopping ₹46,000 crore.

These are eye-popping numbers and if there is one trend in India’s political economy of redistribution this year, this has to be the most remarkable one.

On paper it makes great sense to transfer these sums to wom­en. Women are not just breadwinners in many households but also double up as managers of home finances. In many house­holds, especially those at the bottom deciles of consumption, they are the ones who make the spending decisions.

In nominal terms, the monthly per capita expenditure in rural India (MPCE rural) in 2022-23 was ₹3,773. For urban areas it was ₹6,459. Seen from this consumption trend, even a ₹1,000 cash transfer can boost consumption significantly. But they make even greater economic sense when MPCE is split along various deciles and when the consumption of the bottom two deciles is exam­ined. The MPCE for the bottom 10 per cent of the population (all India) is ₹1,912 and for the next decile it is ₹2,289. A ₹1,000 cash transfer every month is more than 50 per cent of the monthly consumption in the bottom decile and close to 44 per cent for the next. The welfare consequences are unmistakably positive. The economic case could not be cut clearer.

Yet that is only part of the story. If this were the only reason then these schemes ought to be replicated everywhere in India. The case for the bottom 20 per cent of the population getting help is clear. For example, in Karnataka where the Gruha Lakshmi scheme is operational, the bottom decile has an MPCE of ₹2,519. In Haryana, this figure is not very different at ₹2,596. But such transfers are not being made in Haryana. There are other states in a similar situation.

The answer lies in India’s politics even if the perspectives from the national and state levels are different. Modern political analysis, based on individual preferences and choices, says that the policies preferred by the median voter always prevail. If that were the case, there would be an unmistakable preference for even more cash transfers and across India. But this coverage is only partial. There are, no doubt, other, equally rational, concerns. Governments cannot spend beyond their means; sustainability of these schemes is another concern, and finally, once these schemes are launched it becomes very difficult to end them as the political costs are bound to be high.

A better model for understanding contemporary Indian politics and the partial spread of such schemes in that light is the classical Indian idea of matsyanyaya or the Law of the Fish that goes back to the Arthashastra. Understood as a form of State of Nature—where the big fish eat the smaller fish—the idea signifies anarchy. But viewed from another angle, it also means unrestrained political competition. The paradox of contemporary India is that while state structures and the structure of democracy remain robust, political competition is now almost anarchic. The idea that two national parties, and two parties in direct contention at the state level, would converge to a median does not hold in the Indian case. If this were true, as explained earlier, these cash transfer schemes and others as well would be applied uniformly. But that has not happened.

Look at the cash transfer schemes from the perspective of the Bharatiya Janata Party (BJP). They were implemented with gusto in the Assembly elections in Madhya Pradesh (MP) in 2023 and in Maharashtra in 2024. Both elections were unusually tough, in MP because BJP had been the incumbent party for decades and in Maharashtra because of the drubbing the party received in the Lok Sabha polls earlier this year. The danger of the ‘momentum’ from that even impacting the Assembly polls was thought to be real. In both states, cash transfers to women were thought to be a solution and that in­deed turned out to be the case: BJP won both states hands down while ana­lysts predicted doom for the party. However, the same formula was not im­plemented in Haryana in 2024, where BJP had been in power for two terms since 2014, and neither in Chhattisgarh where the incumbent Congress was thought to be comfortably placed before the Assembly elections in 2023. Clearly, BJP assessed its chances very differently in these four states and chose the strategies ac­cordingly. The same situation prevails in the Opposition camp: with Congress in Karnataka in 2023 and the Jharkhand Mukti Morcha (JMM) this year. But while the national perspective is that of unrestrained competition, of a gladiatorial kind, at the state level all parties have a different conclusion—back women voters and you can retain or wrest power.

How long will this state of affairs continue? The first, and most pressing, concern will be fiscal stress. Politics may be fragmented along state lines, economics only considers aggregates. At some point the combined deficit of the Centre and the states will require rationalisation of expenditures. That will necessitate political competition to be more responsible, at least when it comes to promises involving ever higher expenditures. The prime min­ister himself had warned of the adverse consequences of such elevated expenditures. That message seems to have been lost, at least for now. The sooner India’s political parties and their man­agers realise that, the better it will be for the Indian economy.

DK ShivakumarEknath Shindeelectoral politicsIndian politicsKarnatakaMaharashtraSiddaramaiah