In recent years, the Indian political landscape has witnessed a surge in the promise and distribution of “freebies”—direct cash transfers, free utilities, and other immediate benefits aimed at garnering voter support. While these handouts offer short-term relief, they raise critical questions about fiscal prudence, long-term sustainability, and their genuine impact on public welfare.
The term “freebies” refers to the practice where political parties promise or distribute free goods and services to voters during election campaigns. These can range from consumer durables like televisions and laptops to utilities such as free electricity, water, and public transportation. The intent behind such offerings is often to sway voter sentiment and secure electoral victories.
Take the example of the The Mukhyamantri Majhi Ladki Bahin Yojana, popularly known as the Ladki Bahin scheme, was launched by the Maharashtra state government to provide financial assistance to women from low-income families. The scheme offers a monthly stipend of ₹1,500 to eligible women, aiming to empower them financially and improve their standard of living. In the fiscal year 2024-25, the Maharashtra government allocated ₹46,000 crore to the Ladki Bahin scheme. However, in the 2025-26 budget, this allocation was reduced by ₹10,000 crore, bringing it down to ₹36,000 crore. This reduction has raised concerns among beneficiaries and political observers, especially since the ruling coalition, Mahayuti, had promised to increase the monthly stipend from ₹1,500 to ₹2,100 during their election campaign. The recent budget did not address this proposed hike, leading to criticisms from opposition parties. But why the backtracking — the decision to reduce the allocation for the Ladki Bahin scheme comes amid significant fiscal challenges faced by the Maharashtra government. The state’s debt is projected to reach ₹9.3 lakh crore in the 2025-26 fiscal year, accompanied by a revenue deficit of ₹45,891 crore. These financial constraints have compelled the government to reassess its expenditure on welfare schemes. Deputy Chief Minister Ajit Pawar assured that the scheme would continue and that the promise to increase the stipend would be fulfilled once the state’s financial situation improves. To manage the financial burden, the Maharashtra government plans to tighten the eligibility criteria for the Ladki Bahin scheme. Currently, the scheme provides monthly financial assistance of ₹1,500 to approximately 2.3 crore women. The proposed amendments aim to ensure that only the most needy and deserving beneficiaries receive the aid, thereby optimising resource allocation.
Maharashtra is not alone in revising allocations for women-centric welfare schemes. Madhya Pradesh’s Laadli Behna Yojana, which provides monthly assistance to women aged 21 to 60, saw its budget reduced from ₹18,984 crore in the previous fiscal year to ₹18,669 crore for 2025-26. This scheme initially offered ₹1,000 per month, later increased to ₹1,250. The budgetary reduction indicates a broader trend among states to reassess welfare expenditures in light of fiscal pressures. The reduction in allocations for schemes like Maharashtra’s Ladki Bahin and Madhya Pradesh’s Laadli Behna reflects the challenges governments face in balancing populist welfare initiatives with fiscal responsibility. While these schemes aim to provide immediate financial relief and empower women, their long-term sustainability depends on the state’s economic health. As governments navigate these complexities, it becomes crucial to design welfare programs that are both impactful and economically viable, ensuring that short-term benefits do not compromise long-term development goals.
The History of India’s Freebie Culture on the Political Scene:
The genesis of freebies in Indian politics can be traced back to regional parties in the southern states. Starting in Tamil Nadu, the Dravida Munnetra Kazhagam (DMK) and the All India Anna Dravida Munnetra Kazhagam (AIADMK) have, over the years, promised and delivered items like televisions, mixers, and grinders to households. This strategy aimed to uplift the standard of living and ensure access to information and amenities.
In recent times, this trend has permeated national politics. The Aam Aadmi Party (AAP) in Delhi, promised and delivered free electricity up to 200 units, free water supply up to 20,000 liters, and free bus rides for women. These initiatives were credited with bolstering their electoral success.These measures were positioned as efforts to alleviate urban poverty and make basic services accessible to all.
In the fiscal year 2024-25, the Indian government allocated approximately ₹4.57 trillion (about $52.81 billion) for subsidies covering food, fertilisers, and rural employment schemes. This allocation remained nearly unchanged from the previous fiscal year’s expenditure, indicating a sustained high level of subsidy disbursement. Simultaneously, State governments have also been significant contributors to the subsidy landscape. An estimated 14 states have implemented income transfer schemes specifically targeting women, with a collective annual outlay of ₹2 lakh crore, equivalent to 0.6% of India’s Gross Domestic Product (GDP). Continued high spending all welfare is not the major concern, the effectiveness of these spendings are. The focus on women by both union and state governments is yielding results – but we can do better.
Since the fiscal year 2018-19, state subsidies have surged 2.5 times, exceeding ₹470,000 crore by 2024-25. This sharp increase is largely attributed to the burgeoning culture of freebies, which has led to financial distress in several states. This paradigm is conspicuously observed in Himachal Pradesh, where the state’s outstanding debt escalated from nearly ₹88,000 crore in the previous year to an estimated ₹97,000 crore in the current year, representing 42.5% of its Gross State Domestic Product (GSDP). Similarly, Punjab’s debt to-GSDP ratio is projected at 44.1% for the current year, up from 43.9% in 2023-24.
A critical indicator of fiscal health is the ratio of revenue expenditure to capital outlay (RECO). Revenue expenditure includes salaries, pensions, and subsidies, which do not generate future income, whereas capital outlay is invested in creating assets that can yield returns. A higher RECO suggests fiscal imprudence. Nationally, the RECO stands at 5.2, but certain states exhibit alarmingly higher ratios: Punjab: 17.1, Puducherry: 14.1, Kerala: 10.6 and Delhi: 10.3. In contrast, states like Manipur (2.4) and Gujarat (2.9) demonstrate more balanced fiscal management. An alarming analysis of budgetary data from seven Indian states—Punjab, Rajasthan, Uttar Pradesh, Odisha, Andhra Pradesh, West Bengal, and Nagaland—revealed persistent revenue deficits. States with revenue deficits are allocating over 20% of their revenue expenditure to subsidies, thereby constraining their fiscal space to less than 50% of revenue receipts.
Elevated debt levels among states have raised concerns about fiscal sustainability. The Reserve Bank of India (RBI) has emphasised the necessity for states to establish clear, time-bound plans for fiscal consolidation and to report liabilities transparently and uniformly.
The allocation of substantial funds to freebies often results in reduced investment in critical sectors such as infrastructure, education, and healthcare — the guarantors of public welfare in the longer term. Punjab’s capital expenditure was slashed by almost ₹3,000 crore in the current year compared to the previous year’s budget. This diversion hampers long-term economic growth and development. Hence, the question remains: do these “freebies” and other handouts truly contribute to genuine welfare, or are they just short term political tools with limited long-term impact? The direct provision of goods and services undoubtedly addresses immediate needs but fails to address underlying structural issues of poverty and inequality.
Freebies often provide temporary relief, which can help alleviate immediate burdens, but they do little to create sustainable, systemic improvements in quality of life. While financial assistance schemes like Maharashtra’s Ladki Bahin Yojana or Madhya Pradesh’s Laadli Behna Yojana directly boost household incomes, they don’t fundamentally improve access to quality education, healthcare, or employment opportunities. These handouts can be seen as palliative measures rather than solutions to deeper socio-economic problems. Additionally, over time, they may undermine self-sufficiency by promoting dependency on state transfers rather than encouraging individual initiative and skill development.
Indubitably, in a highly unpredictable global economic landscape, India cannot negate the fiscal sustainability of these lubberly promises. The significant rise in subsidies and freebie schemes has contributed to growing debt burdens for many states. As seen in Himachal Pradesh and Punjab, the increasing strain on state budgets threatens to undermine fiscal health. Continued reliance on such schemes without corresponding revenue generation or long-term economic strategies may lead to a situation where states cannot meet their obligations without further borrowing, thereby jeopardising future generations’ economic wellbeing. Excessive spending on non-productive handouts also crowds out investment in critical areas such as infrastructure, education, and healthcare.
Yet another significant criticisms of freebie schemes is their inefficiency in targeting the truly needy. Eligibility criteria are often broad or poorly defined, leading to the inclusion of individuals who do not require financial assistance. The Direct Benefit Transfer Schemes (DBTS) of the government of India are worthy of appreciation in this context. Therefore, enforcing DBTS methodology in the execution of handout welfare policies is critical. In his recent podcast with Lex Friedman, Prime Minister Modi, remarked that his government has purged over a 100 million counterfeit beneficiaries from government databases of welfare schemes. Reassessing and tightening eligibility requirements, as Maharashtra has attempted with the Ladki Bahin scheme, could help focus resources on the most disadvantaged. However, such cuts may also leave some vulnerable populations behind, which raises questions about fairness. Furthermore, the lack of proper monitoring mechanisms often leads to leakage, where a portion of the allocated resources doesn’t reach the intended beneficiaries.
The Principal Challenge in View of the Authors:
Freebies are more than often used as tools to consolidate political support, leading to concerns about their true purpose. When welfare programs are framed primarily as electoral tools, they can become highly politicised, subject to changes depending on the ruling party’s priorities and budgetary constraints. Remember the frenzy surrounding “Qarz Maafi” (forgiveness of loans to farmers) that emanated from Congress scion Rahul Gandhi’s campaigns in one state after the other? As it turned out, the states that voted Mr. Gandhi’s to power amidst the hype of the promise – his governments simply could not afford to deliver. This undermines the reliability of welfare systems, leaving citizens uncertain about the continuity and effectiveness of programs. Ideally, welfare schemes should be insulated from political cycles to ensure long-term stability and trust in public policy.
Elucidating more on the concern of freebies breeding a sense of entitlement and dependency, rather than promoting self-reliance. Over the long-term, these handouts may diminish the motivation for individuals to improve their economic status through education, skill development, or entrepreneurship. While they provide immediate relief, they should ideally be part of a broader, holistic policy package that focuses on lifting people out of poverty in a sustainable manner. This is not a call for haphazarded cuts in welfare spending, the Indian public remains in dire need of a multimodal and streamline welfare framework, however, governments at all levels need to reconfigure welfare objectives in the longer term – namely education, healthcare, retirement and pensions – whilst aligning with exigent contemporary socio-economic realities. Simultaneously, the governments ought to recalibrate the effectiveness of its welfare policies in mitigating the grievances of the concerned. Thoroughly contemplated welfare polices, targets and methodologies can uncover novel strengths in the world’s most populous nation and imbue accelerated dynamism in the soon to be third largest economy of the world. Here we evince investments into education welfare, healthcare, skill development, training, and other opportunities.
How Can India Better its Welfare System?
Primarily, instead of broad, untargeted freebies, the government could implement more targeted cash transfers that focus on the poorest households.
And the union government has made considerable headway here. Conditional Cash Transfers (CCTs), such as those successfully implemented in countries like Brazil and Mexico, offer cash incentives to families who meet specific requirements (e.g., children’s education, India’s midday meals program in schools, and vaccination rates). These schemes can both alleviate immediate poverty and encourage long-term investments in human capital.
Education is a key determinant of social mobility, economic productivity, and long-term welfare. A well-educated population is not only less dependent on government aid but also contributes more effectively to national growth. However, despite its importance, India’s public investment in education remains inadequate compared to its global counterparts. The National Education Policy (NEP) 2020 recommended that public expenditure on education be increased to 6% of GDP. However, India has never met this target. In 2023-24, India allocated ₹1.12 lakh crore ($13.5 billion) to the education sector, which represents less than 3% of GDP. A robust welfare system is achievable in a broader framework that includes mutually reinforcing systems of education, training and economic opportunities.
Hence, it is not surprising, that over the past two decades, India has witnessed a massive shift towards private education due to declining trust in government schools. 52% of urban students and 35% of rural students are now enrolled in private schools. Private institutions charge high fees, making quality education inaccessible for lower-income groups. Public universities struggle with underfunding, leading to inadequate research opportunities and faculty shortages.
Investment in education is arguably the most effective welfare policy because it provides individuals with the tools to be self-sufficient rather than dependent on government handouts.
Enhanced access to quality education and vocational training will help create opportunities for upward social mobility, leading to a reduction in the need for handouts over time. The government can expand public-private partnerships to improve the quality of education and healthcare services in underserved areas. The NDA government in its third term does seem to lay due weightage on the issue. The Prime Minister Internships scheme, facilitation of research and academic materials through an integrate platform to students at government institutions, coupled with previous efforts such as Skill India are steps in the right direction. Again, there emerge wide-ranging opinions on the efficacy of these schemes.
To make education a true pillar of welfare, India must increase education spending to at least 6% of GDP as recommended by NEP 2020. Subsequently, it needs to enhance funding for higher education and research, particularly in technology and healthcare.
Tax Proper to Better Welfare:
To finance the aforementioned welfare initiatives while ensuring fiscal prudence, India must focus on increasing revenue generation through better taxation systems. Strengthening the Goods and Services Tax (GST) system, enhancing tax compliance, and broadening the tax base can help create a more equitable revenue model. With increased revenue, the government can provide more efficient, targeted assistance to the most vulnerable populations.
Continuing on this fundamental challenge of taxation and revenue generation. While state and central governments continue to roll out large-scale welfare schemes, their ability to finance these programs without excessive borrowing is becoming increasingly difficult. A weak tax-to-GDP ratio, a large informal economy, and tax inefficiencies contribute to revenue shortfalls, forcing governments to either accumulate debt or cut essential development expenditures.
India’s tax-to-GDP ratio (the proportion of a country’s total economic output that is collected as taxes) has remained stagnant for years. For FY 2023-24, India’s tax-to-GDP ratio stood at 11.7%, far below the OECD average of 34% and even lower than many emerging economies like Brazil (31.6%) and South Africa (26.2%). This low tax collection means the government has limited resources to invest in welfare, infrastructure, and public services.
The share of personal income tax and corporate tax in India’s total revenue collection is lower than in advanced economies. A significant portion of India’s high-income population remains outside the tax net due to evasion or weak enforcement. Taxes like the Goods and Services Tax (GST) and excise duties contribute disproportionately to government revenue. However, indirect taxes are regressive, meaning they burden the poor more than the rich. Increasing non-tax revenues of the government is also a crucial part of this discussion. Asset monetisation and privatisation efforts in public enterprises remain under utilised.
Moreover, it is imperative to note, a significant portion of India’s workforce— over 80%—is employed in the informal sector, where tax compliance is minimal. Informal businesses, street vendors, and small-scale traders often operate outside the tax system, reducing overall revenue collection. The lack of formal employment also means lower contributions to schemes like the Employee Provident Fund (EPF) and health insurance, limiting the government’s ability to provide universal social security. Some solutions to formalise the vast economy of India maybe to incentivise MSMEs to register under formal structures through tax rebates and simplified compliance norms. Linking direct benefit transfers (DBT) to tax filing records, ensuring businesses and individuals benefiting from government schemes also contribute to the tax system. India has a thriving digital ecosystem, especially in finance, banking and fintech, demonstrating continued broadening of the ambit of financial inclusion, which may be the bedrock of reforms concocted by policy makers.
For India to foster a strong social security net without falling into fiscal distress, it must expand its revenue base through efficient taxation, economic formalisation, and transparent fiscal policies. Rather than over-relying on debt to fund welfare, the government must improve tax collection, rationalise subsidies, and invest in revenue-generating sectors.
A sustainable welfare state is not built on handouts alone—it requires a well balanced economic strategy that ensures equitable taxation, promotes economic growth, and guarantees long-term fiscal health.
A focus on infrastructure, especially by the state government, would also go a long way. Instead of spending disproportionately on freebies, states should allocate more funds towards the creation of public goods such as metropolitan infrastructure, affordable housing, and sanitation. Investments in these areas create a lasting impact on quality of life, stimulate economic growth, and generate employment opportunities, all of which contribute to improved welfare in the long run.
The final theme of our analysis are retirement and the pension systems. A strong and sustainable pension system is a crucial component of any welfare state, ensuring that individuals can retire with financial security. In India, the aging population, informal labor market, and fiscal constraints pose significant challenges to retirement security, requiring urgent reforms to balance social protection with economic sustainability. Government supported pension programs such as the Employee’s Pension Scheme under EPFO, National Pension System, Atal Pension Yojana (APY), Old Pension Scheme (hotly debated reinstatement in opposition states), Indira Gandhi National Old Age Pension Scheme are all broadly available to a mere 20% of the population.
Yet, in FY 2023-24, states spent ₹4.72 lakh crore on pensions, nearly 12% of their total revenue. Pension expenditure is projected to exceed capital outlay in many states, reducing spending on infrastructure, health, and education. The pension-to-GDP ratio is expected to rise as India’s elderly population (60+) doubles from 10% in 2021 to 20% by 2050. If pension obligations continue to rise unchecked, states will be forced to either cut essential services, increase debt, or raise taxes—all of which have serious economic consequences.
The Old Pension Scheme (OPS) Vs. the New Pension Scheme (NPS) is a vivid example of India’s fraught pension system. Under the OPS, guaranteed pension equal to 50% of last drawn salary or based on last 10 months’ average salary, adjusted for inflation. Wherein, under the NPS, a defined contribution scheme where pension payouts depend on market returns and accumulated corpus. OPS creates long-term fiscal liabilities, with pensions consuming a growing share of state budgets. OPS also excludes private sector and informal workers, making it unfair to the larger working population. Several states, including Rajasthan, Chhattisgarh, Punjab, and Himachal Pradesh, have revived OPS, raising concerns over fiscal responsibility and intergenerational equity. A probable solution could be a combination of guaranteed minimum pensions with market-linked returns to balance security and affordability.
Universalising pension access has to be the anchor of reforms in India’s pension system. Enhancing benefits, especially under the APY, developing micro-pension schemes and improving financial literacy, again retracting to education, which is the fulcrum of welfare.
India’s welfare model must move beyond short-term handouts and focus on long-term financial security for its citizens. Ensuring pension sustainability requires a wider coverage for informal and gig workers. A fiscally responsible pension framework. Higher investments in retirement security. Stronger public private pension models.
By implementing these reforms, India can prevent old-age poverty, reduce fiscal stress, and build a resilient welfare system that benefits both retirees and future generations.
Final Words:
Unequivocally, India as the world’s most populous nation with a dynamic demographic, the world’s second largest consumer markets, is metamorphosing into a quintessential and overriding engine of the global economy. Nevertheless, economic inequality and ballooning economic inequality are a major obstacle to country’s growth ambitions. The future of India’s welfare state should not be about how much the government gives away, but how effectively it enables citizens to uplift themselves. Real welfare means ensuring quality education, sustainable employment, robust healthcare, and financial security for all. If India truly aspires to be a global economic powerhouse, it must transition from a freebie-driven welfare model to a development-oriented one—one that empowers rather than entraps.