By – Dhruvi Solanki
Abstract
Pre-election cash transfer programs have come to characterize West Bengal’s political economy. With the 2026 Assembly elections in sight, the state government increased its signature scheme, Lakshmir Bhandar, and introduced new allowances just weeks after the elections despite rising revenue deficits, mounting debt, and interest payments. This article seeks to explore whether the fiscal populism witnessed is a form of welfare or a result of a spending cycle crafted by the politicians. By applying William Nordhaus’s political business cycle theory to explain this phenomenon, it follows the trend from other instances in India, starting with the promise of free television by Tamil Nadu and the promise of free power by Punjab, all the way to West Bengal’s budget in 2026, showing how the predictions made by the political business cycle theory already hold true for the state’s finances.
Introduction
In recent years, the election period in India has become the budget period. As the time for polling approaches, state governments irrespective of their political affiliation are likely to announce various cash transfers, subsidised utility services, and additional welfare benefits. Thereby, inviting repeated warnings about fiscal dangers of the ‘revdi culture’(traditional Indian sweet ) from the Reserve Bank of India, Comptroller and Auditor General of India and even Supreme Court of India.
There could be no better example of the phenomenon in India than the state of West Bengal. The scheme called “Lakshmi Bhandar” introduced by the state government of West Bengal in 2021, wherein the money was directly transferred to women beneficiaries on a monthly basis, has undergone two consecutive pre-election increases first before the 2024 Lok Sabha election and then prior to 2026 Assembly election.
Electoral Freebies: Welfare or Populism?
The boundary between welfare and the freebie is debatable rather than self-explanatory. The RBI has defined freebies in contrast with meritorious goods like education, health, and employment guarantees and has categorized unconditional cash transfers, loan waivers, and free utility services as riskier because they contribute very little towards increasing the productivity of a state. The Subramaniam Balaji judgment of the Supreme Court in 2013 ruled that manifesto commitments cannot be considered as ‘corrupt practices’ and, therefore, the question of the distinction between freebies and welfare remains unsettled in the eyes of the law despite being hotly debated from an economic perspective. NITI Aayog has suggested an approach towards putting a hard budget constraint for freebies provided by the states, based on the Fiscal Responsibility and Budget Management approach. On the other hand, defenders argue that cash transfers to women in a state where women are poorly represented in the labor market act as true poverty alleviation and income support and not just a means of vote purchasing. Both arguments are justified but, from the point of view of macroeconomic consequences, it is not the morality of the program but its timing and financing that matter.
Past Cases: A Recurring Pattern
The story of West Bengal is far from exceptional, it is the template followed across India by many states for at least two decades now. The case of Tamil Nadu’s pledge to give away color TVs for free, which led to Subramaniam Balaji litigation, came quite early in the history of what we call today ‘cash equivalent’ freebies promised in election manifestos.
But it was only after the June 2022 RBI report that revealed an increase in state subsidy spending by 11.2% within a single financial year and ‘freebies’ accounting for more than 2 per cent of Gross State Domestic Product (GSDP) in the most indebted states, the issue of freebies came into national debate. In fact, it has been pointed out in various reports and studies done by the RBI on the state finances that Punjab, Andhra Pradesh and West Bengal have always been among those states where increasing subsidy spending corresponds with growing debt-to-GSDP ratio that is fast approaching unsustainable levels. Historically, West Bengal’s own finances have shown the same warning signs even before the current cycle of cash transfers: an older RBI assessment found that interest payments alone pre-empted over 30 per cent of the state’s revenue receipts, describing West Bengal as being in a ‘debt trap.’ The pattern, in other words, long predates Lakshmir Bhandar; the scheme has simply given it a sharper, more visible electoral face.
Recent Examples: West Bengal’s 2026 Budget
An instance of such an announcement has been provided by the vote-on-account budget presented in February 2026, a few months prior to the Assembly elections. West Bengal’s Minister of Finance-Chandrima Bhattacharya increased the Lakshmir Bhandar grant to Rs 1,500 a month for general category women and Rs 1,700 a month for SC and ST women, covering an estimated 2.42 crore people at an estimated cost of around Rs 27,500 crore annually.
This was purposefully made effective in February to ensure that the benefit reaches the beneficiaries’ bank accounts prior to the start of voting in April. In addition, the budget announced the implementation of unemployment allowance for the youth and an increase in dearness allowance for government servants. As per PRS Legislative Research, cash transfers in relation to Lakshmir Bhandar alone have increased from 3 per cent to 10 per cent of the state’s revenue receipts between 2021-22 to 2025-26.
The fiscal deficit of West Bengal thus increased to 2.4 per cent of GSDP in FY25, with the revenue outlay expected to increase by 11 per cent in FY27. The BJP government that emerged victorious in the Assembly elections held in 2026 did not undo the plan. On the contrary, it substituted the Lakshmir Bhandar scheme with a new one, called the Annapurna Bhandar scheme, beginning June 2026. This time, the stipend was raised to Rs 3,000 per month. But the budget prepared by the new government for the year 2026-27 predicted a fiscal deficit of just Rs 62,421 crore, despite its debt reaching an estimated level of Rs 8.15 lakh crore, an outcome blamed on the previous regime, despite the current government expanding the tool that created it.
Theoretical Lens: The Political Business Cycle
The political cycle story in West Bengal fits into the political business cycle framework proposed by William Nordhaus in 1975. The theory behind fiscal manipulation for political gain is as follows: The incumbent, whose main concern is re-election rather than good economic conditions of the region in the long run, increases public expenditure before an election in order to provide a temporary boost of good feeling among the electorate and afterwards changes the course through fiscal correction, either via austerity measures, increased taxation, or reduced expenditures. The theory is based on the assumption that the electorate is shortsighted and rewards current transfers at the expense of future costs of the increased borrowing.
There are two clear predictions for the case of West Bengal. First, the expenditure on highly visible transfers like Lakshmir Bhandar is expected to increase significantly before the elections irrespective of the fiscal capacity of the state, just as observed in the increase of 2026 in February, which will kick in before the polls in April. Secondly, since such expenditures depend upon borrowing and not fresh sources of revenue in an environment where revenues are already constrained, according to the theory, this means that the incumbent, once in power, will be forced either to consolidate expenditures or to keep expanding them depending on how politically competitive it is for him/her not to expand expenditures.
This mechanism has two fiscal implications for West Bengal. First, expenditure quality worsens: revenue spending , salaries, interest payments, and cash transfers , crowds out capital expenditure, with the RBI noting that revenue deficit accounts for nearly all of the state’s gross fiscal deficit. Second, debt-servicing burdens grow: with total debt already above Rs 8.15 lakh crore and interest payments consuming nearly a third of revenue receipts, every additional transfer further squeezes future spending on education, health, and infrastructure.
Conclusion
The example of West Bengal demonstrates that the freebies vs. welfare debate does not find a solution in analyzing the characteristics of a particular project. The schemes of Lakshmir Bhandar and Annapurna Bhandar are probably providing income support to women in an economically vulnerable position in a state where there is not much formal employment for women, which is indeed a claim made in good faith by its proponents.
Yet, from the point of view of macroeconomic data analysis, supported by the concept of political business cycle, a different picture is revealed: the implementation of the transfers analyzed has been timed and scaled not in accordance with the state’s fiscal abilities but according to the election schedule, and such a strategy has survived the transfer of power. In case this theory remains valid, West Bengal can look forward to growing differences between revenue expenditures and revenues, increasing debt to GSDP ratio and reduced availability of funding for capital investments. Breaking that cycle would require either a binding fiscal rule of the kind NITI Aayog has proposed, or a political consensus , currently absent, that welfare commitments be delinked from the electoral calendar altogether.
About the Author
Dhruvi Solanki is a second-year Economics and Finance student at Symbiosis School of Economics and a member of the Economics and Finance Cluster of Nickeled & Dimed. She is an avid student of economic policy and market behaviour, with a strong interest in fiscal policy, consumer economics, and the real-world impact of taxation on markets and households.
Image Source : https://jgu.edu.in/jsgp/jindal-policy-research-lab/promises-and-policies-the-shifting-landscape-of-welfare-in-madhya-pradesh/