Impact of Sops on India's Fiscal Landscape in 2024-25

An RBI article warns that sops announced in the 2024-25 Budgets by various Indian states, such as free electricity and allowances, may divert funds from essential infrastructure. Despite a strong fiscal start, sustaining medium-term growth may be compromised, impacting social and economic infrastructure.

An RBI article critiques how several Indian states' 2024-25 Budgets sops might impinge on resources meant for vital infrastructure projects, a report revealed on Tuesday.

While the gross fiscal deficit has moderated due to high receipts and tempered expenditure, some states have opted to introduce sops, including free amenities and monetary support, possibly impacting infrastructure development, the RBI Bulletin noted in December.

The fiscal health allows increased capex in late 2024-25, potentially sustaining pandemic recovery gains. Yet, the balance between social spending and infrastructure investment remains precarious as the fiscal cycle progresses and political dynamics come into play.

(With inputs from agencies.)