Freebies and fiscal discipline: Can Bihar afford a revdi culture? | Capital Beat

The upcoming Bihar Assembly elections are defined by an unprecedented wave of competitive populism, where the ruling and Opposition alliances are deploying massive financial promises to sway voters. This was the central theme of the latest Capital Beat panel discussion, featuring S Srinivasan, Editor-in-Chief of The Federal; Puneet Nicholas Yadav, Political Editor of The Federal; Kalaiyarasan Arumugam, Economist with the Madras Institute of Development Studies (MIDS); and Ashok Mishra, a Patna-based Senior Journalist.

The discussion focused on the economic viability and political efficacy of these freebies against Bihar's deep-rooted socio-economic challenges.

Freebies and the Anti-incumbency factor

Chief Minister Nitish Kumar is facing the toughest political battle of his lifetime and has responded by showering the electorate with multiple benefits. The government has already transferred Rs 10,000 each into the bank accounts of 1.21 crore women beneficiaries under the Mukhi Mantri Mahila Rojgar Yojana. This is part of a total freebie package of nearly Rs 50,000 crore announced in the last two to three months, which also includes increased stipends for ASHA workers.

Senior Journalist Ashok Mishra noted that the Rs 50,000 crore package is a substantial burden on the state, given that the total value of the Bihar budget is approximately Rs 2.50 lakh crore. The incumbent government is using these freebies primarily as an exercise to counter the anti-incumbency sentiment it is currently facing.

The challenger’s counter-promise

In response to the incumbent's moves, Rashtriya Janata Dal (RJD) leader Tejashwi Yadav, the key challenger, has made a promise of one government job per household in Bihar. The RJD's promise comes despite the massive fiscal implications; Bihar currently has around 26 lakh people in government jobs, while the state survey reports 2.76 crore households.

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Puneet Nicholas Yadav argued that fiscal prudence is rarely compatible with electoral promises. He pointed out that the average monthly income in Bihar's urban areas is around Rs 2,217 and only about Rs 1,700 in rural areas. Political communication has become highly transactional, where the public expects a direct return for their vote. Regarding Tejashwi Yadav's promise, RJD leaders clarify that the details will be released in the full manifesto, with one key part of the job creation scheme potentially involving the opening up of the private sector for reservations, alongside a Bihar domicile clause.

The economic structure of populism in Bihar

Economist Kalaiyarasan Arumugam distinguished between two types of populism: development-enhancing and compensatory, election-driven. Development-enhancing populism, such as midday meals that improve nutrition and educational outcomes, builds human capital. In contrast, compensatory populism, which is tied to the five-year electoral cycle, often reduces state capacity and diverts resources from productive asset creation.

Arumugam highlighted that Bihar's economic growth is largely consumption-driven, not investment-driven. Bihar is one of the few states where consumption tends to be greater than the income produced by the state. This is possible due to two main factors: private transfers from migrant labor and central transfers from the Union government. About 70% of the state government's revenue for its basic functioning comes from central transfers, making it heavily dependent on Delhi.

Consumption versus investment

The economist further presented data to show that this compensatory populism is not sustainable for Bihar’s long-term development. Bihar's credit deposit ratio indicates a net capital flow out of the state. Money deposited by households in Patna or Gaya is often invested in cities like Bangalore or Chennai, instead of being reinvested in economic activities within Bihar.

Arumugam cited data suggesting that Bihar is a "state of the contractors, not really an entrepreneurs". While the state ranks high in fulfilling government contracts, private investment is almost nil, with capital formation at approximately 4% of its GSDP. The current freebies, therefore, are simply "a compensatory, electronically tied populism," which is not connected with the developmental structure the economy requires.

Caste calculus versus governance agenda

Ashok Mishra maintained that despite the significant cash transfers, such freebies do not matter significantly in Bihar's caste-driven society. Voters remain largely divided on the basis of caste affiliation, and electoral outcomes will eventually be determined by caste combination. He noted that the freebies are an attempt to "annul or are going to confuse voters and to counter the caste feelings of the people," but argued they would not make a major impact on the electoral preferences.

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The panel also discussed Prashant Kishore’s emerging political force. Mishra noted that while Kishore’s Jan Swaraj has raised issues of development, jobs, and social development, the party’s first list of 51 candidates also started with a count of caste affiliations, detailing 17 seats for extremely backward castes and 11 for backward castes. However, Kishore is making corruption a central issue, claiming that the scale of corruption in the current government is greater than the "Jangal Raj" era.

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