Maharashtra facing election amid shrunk economy

As Maharashtra, one of the largest and most dynamic economies in India, faces the just announced assembly election, its budget for 2024-25 presented by Finance Minister Ajit Pawar in July and certain promises made to the people of the state right before the model code of conduct came into force derserve scrutiny. With ambitious promises spanning infrastructure, welfare, and sectoral growth, the budget attempts to address both economic development and fiscal challenges.

Evaluating the feasibility of these commitments requires examining recent economic data and trends.

Economic performance and challenges

Maharashtra is projected to grow at 7.6% in FY24, a solid improvement over the previous year's 6.8% growth rate. The state remains a key contributor to India’s GDP, accounting for 13.9% of the national output. However, the growth outlook comes with challenges. Inflationary pressures, fiscal stress, and sectoral volatility continue to impact Maharashtra's economic environment.

The recent reports from October 2024 highlight concerns about underutilization of funds in key sectors and the state’s increasing debt burden. Maharashtra's economy faces obstacles like inconsistent agricultural growth and urban infrastructure bottlenecks, which hinder sustained economic development. In addition, the global slowdown and fluctuating commodity prices create further uncertainties for the state’s fiscal planning.

Budgetary promises vs fiscal realities of Maharashtra

The 2024-25 budget lays out significant allocations:

1. Education and welfare: Rs 98,985 crore for education and Rs 32,754 crore for social welfare.
2. Infrastructure development: Rs 42,415 crore for transport, focusing on roads and bridges.
3. Health and police: Rs 27,748 crore for health and Rs 29,338 crore for police, indicating a focus on public safety and welfare.

Despite these allocations, the state’s **committed expenditure**—such as salaries, pensions, and interest payments—limits fiscal flexibility. In 2024-25, committed expenditure accounts for 55% of Maharashtra’s revenue, constraining investments in other critical areas like infrastructure and agriculture. Furthermore, pensions alone are projected to rise by 30%, adding significant pressure on the budget.

The government also aims to curb its capital outlay, with the 2024-25 allocation remaining stagnant at Rs 85,292 crore, a slight reduction from the revised estimates of the previous year. This raises questions about Maharashtra's ability to fund large-scale infrastructure projects effectively.

Feasibility and risks

Several risks could affect the economic viability of Ajit Pawar’s promises:

1. Debt and deficit: The state’s net expenditure is estimated to rise to Rs 6,12,293 crore in FY25, only a 2% increase from the previous year. However, the borrowing requirements remain high, which could exacerbate fiscal stress in the future.
2. Sectoral inconsistencies: While the budget shows increases in police funding and urban development, other sectors like agriculture see reduced allocations. Agriculture, which employs a large section of the population, has witnessed a 15% cut in funds for FY25, raising concerns about rural economic stability.
3. Implementation gaps: Maharashtra’s historical pattern of underspending in sectors like infrastructure could undermine the effectiveness of the allocated funds. For instance, unutilized allocations in previous years have delayed key projects, weakening economic momentum.

Ajit Pawar’s budget outlines ambitious targets, but achieving them will require balancing growth ambitions with fiscal prudence. While the projected 7.6% economic growth offers optimism, the heavy reliance on committed expenditure limits maneuverability. Key sectors like agriculture require more consistent support to avoid economic imbalance, especially in rural areas. The state's debt burden, volatile global conditions, and the challenge of effective fund utilization further complicate the path ahead.

Overall, Maharashtra’s 2024-25 budget attempts to strike a balance between welfare and development, but the economic viability of its promises remains contingent on prudent fiscal management and timely implementation. Without addressing these underlying challenges, the risk of widening fiscal gaps could jeopardize the ambitious targets set by the government.

Promising the moon before MCC was enforced

In the lead-up to Maharashtra's assembly election, the Eknath Shinde government made a slew of announcements, reflecting an effort to finalize projects and policies just before the model code of conduct came into effect on October 10, 2024. These last-minute decisions include over 80 approvals from the state cabinet and accelerated project clearances, primarily focusing on infrastructure and social welfare measures.

One of the more prominent promises centers around expanding welfare schemes, infrastructure upgrades, and financial relief for farmers. However, there are significant questions about their feasibility. Maharashtra already faces a substantial debt burden — expected to exceed ₹7 lakh crore — and a fiscal deficit of ₹95,000 crore according to the state’s July 2024 budget proposals. The promises made in this period, particularly the extension of subsidies, free electricity, and rural development incentives, place additional strain on the state’s finances.

Although the government claims that these announcements align with long-term budgetary plans, economists are skeptical. Several large projects such as metro line extensions and rural housing schemes depend on central funding and private investment, both of which remain uncertain. Additionally, given the fiscal constraints highlighted in the budget, many of these announcements appear politically motivated rather than economically sound. The timing—just days before election restrictions—has also drawn criticism, suggesting that these promises are more about securing voter sentiment than sustainable governance.

In sum, while the government’s promises resonate with public aspirations, the economic viability remains questionable. Maharashtra’s fiscal position limits its ability to implement these schemes without significant borrowing, which could further elevate debt levels. With the assembly election looming, the challenge will be not just delivering on these promises but managing the state’s finances responsibly beyond the election season.