Maharashtra's Economy: Heading Toward Financial Crisis or Like Sri Lanka?

One of India's most prosperous and industrialized states, Maharashtra, is currently going through economic crisis. Experts have warned that if the state continues on this fiscal path, it may mirror Sri Lanka, which recently succumbed to catastrophic economic collapse. The state's increasing debt, soaring revenue gap, and use of populist welfare schemes for electoral gains have raised huge concerns about its long-term financial health.

The Mahayuti alliance, led by the Bharatiya Janata Party (BJP), won the recent assembly elections decisively. One of the promises that helped the BJP win was the introduction of the Majhi Laadki Baahin Yojana (LBY), a welfare scheme that offers Rs 1,500 per month to economically disadvantaged women. The amount has now been increased to Rs 2,100 per month, as promised in the state government's election manifesto.

While the scheme has been appreciated for its intention to uplift women from impoverished backgrounds, it has also been criticized as an example of political expediency over sound economic policy. The Laadki Baahin Yojana will cost the state Rs 46,000 crore (Rs 460 billion) annually, a significant burden on Maharashtra's finances. Yet, the state government remains committed to expanding the program, raising questions about how long it can afford to do so.

National Related News

Indian women power employment growth in robust labor market, says survey

Maharashtra CM pick to be decided tomorrow: Eknath Shinde

Watch: Rahul Gandhi's 'Yuva' Slip-Up In Lok Sabha Leaves Union Ministers In Splits

Garena Free Fire MAX Redeem Codes for December 7: Unlock Exciting Rewards Today

(Syed Firdaus Ashraf/Rediff.com spoke to Vishwas Utagi, leader of the All India Bank Officers Association and economist, on Maharashtra’s financial muscle to afford the Laadki Baahin Yojana.)

A Fiscal Worry in the State

The financial stress on Maharashtra goes much deeper than that of the Laadki Baahin Yojana. The revenue deficit in the state has swelled to Rs 2 lakh crore while total debt has ballooned to Rs 8 lakh crore. Many such debts were for building metros and other infrastructural activities and taken from institutions that include the World Bank. Thus, a significant share of the state's income is currently being spent on servicing these loans and 35-40% of the revenue of Maharashtra is already dedicated to repaying the debt.

Economist and All India Bank Officers Association leader Vishwas Utagi says that this is unsustainable. "For every Rs 100 generated by the Maharashtra government, Rs 35 to Rs 40 goes toward debt servicing," he explains. "If this continues, Maharashtra's fiscal situation could mirror Sri Lanka's, which collapsed due to unsustainable debt and fiscal mismanagement."

Utagi points out that though welfare schemes such as Laadki Baahin Yojana may offer relief to those in need, it takes away something else of greater importance. Education and healthcare, which were once pillars of Maharashtra's public service, are now being drastically curtailed as funds are diverted to maintain populist policies. 

The Cost of Populism

The biggest question for Maharashtra's economy is how long it can continue with this kind of welfare programs. With the Laadki Baahin Yojana costing the state a whopping Rs 46,000 crore annually, the question is: How will Maharashtra fund it? Utagi believes the government will probably be left to increase taxes but that poses a huge challenge. Many taxes, including property taxes and stamp duties, are already at high levels, and further hikes may stifle economic activity and provoke public dissatisfaction.

"There is only so much the government can do in terms of raising taxes," Utagi says. "Maharashtra's tax burden is already heavy, and further increases could have negative effects on businesses and the economy as a whole."

Declining per capita income is another worry for Maharashtra's fiscal health. While Maharashtra is one of the wealthiest states of India, its per capita income has not changed in the past 15 years. Rural income is the lowest, and the government has not improved the economic conditions for people living in rural areas or cities. According to Utagi, political leaders may announce the welfare schemes to win votes; they have failed to implement those policies that would boost overall incomes.

"Freebies are not the solution to Maharashtra's economic problems," Utagi adds. "The state must focus on creating jobs and increasing productivity, not just offering cash transfers."

Job Creation and Fiscal Discipline

The most prominent factor behind the poor performance of the state relates to job creation. Over the past few years, Maharashtra has seen a rise in contractual and gig economy jobs, which offer low wages, limited security, and minimal purchasing power. The COVID-19 pandemic further exacerbated this issue, with many small and medium-sized businesses shuttering their operations. While some businesses have recovered, many others have permanently closed, leaving a significant portion of the workforce unemployed or underemployed.

During the pandemic, giving cash to people was necessary to restore their purchasing power, but long-term solutions require job creation, Utagi stresses. "The state must focus on boosting the MSME sector, helping businesses grow, and ensuring that workers have access to secure, stable jobs," he added.

Another major issue is Maharashtra's lack of fiscal discipline. According to the state's Fiscal Responsibility and Budgetary Management Act, the fiscal deficit should be below 3% of the Gross State Domestic Product (GSDP). However, Maharashtra has crossed the limit, which worsens its financial condition.

Freebie Culture

The rise of "freebie culture" in Maharashtra is leading the state to an economic crisis. Here, political parties - whether from the opposition MVA or otherwise - are fighting for each other to provide even more free things to win over voters' votes. For instance, MVA promised Rs 3,000 per month to each woman if they form a government. According to Utagi, this concentration on freebies is shortsighted and disastrous for Maharashtra's economic stability.

"Subsidies and welfare programmes are essential in times of economic turmoil, but they cannot be a solution forever," Utagi explains. "The real test is job creation and the state of economy. The state must change its focus from short-term populism to long-term economic growth."

Conclusion: Wake-Up Call for Maharashtra

Maharashtra’s economic trajectory is alarming, and if its fiscal policies do not change, the state could face a crisis similar to Sri Lanka’s. Populist welfare schemes like the Laadki Baahin Yojana, while well-intentioned, cannot be sustained indefinitely without jeopardizing the state’s financial future. The government must prioritize economic growth, job creation, and fiscal discipline to avoid a financial collapse.

Maharashtra must learn from the mistakes of other countries and states that have ignored fiscal discipline and long-term planning. The state’s leaders must focus on sustainable economic policies that can create jobs, boost productivity, and ensure a stable fiscal future. Failure to do so could result in Maharashtra’s economic decline and social instability, affecting millions of people.

(Syed Firdaus Ashraf/Rediff.com spoke to Vishwas Utagi, leader of the All India Bank Officers Association and economist, on Maharashtra’s financial muscle to afford the Laadki Baahin Yojana.)