Promises of freebies always add a feel-good factor to election campaigning and the just concluded assembly elections in Assam, Keralam, Puducherry, West Bengal and Tamil Nadu were no different. Cash transfers to women beneficiaries are now an almost new normal in state polls. In the just concluded assembly elections, political parties went all out to also promise much more.

This includes free gold coins to brides and six free LPG cylinders per year by Vijay’s Tamilaga Vettri Kazhagam (TVK) in Tamil Nadu, higher pensions and interest free loans to young entrepreneurs by the United Democratic Front (UDF) led by the Congress in Kerala and implementation of the Seventh Pay Commission and financial aid to unemployed youth by the Bharatiya Janata Party (BJP) in West Bengal.

Analysts and experts are closely watching the formation of new governments in these states and the economic agenda they take up while warning that welfare schemes will have an impact on the already high fiscal deficits in many of these states.

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Populism at play

“Tamil Nadu, Assam, West Bengal, and Kerala currently have fiscal deficits above 3%. The 16th Finance Commission (for 2026-31) has recommended a strict annual fiscal deficit limit for states at 3% of their gross state domestic product, and all four states currently are in breach of this 3% target,” Suresh Ganapathy, Managing Director and Head of Financial Services Research at Macquarie Capital, pointed out in a recent note.

A report by Emkay Global Financial Services also highlighted this challenge and said the 3% fiscal deficit ‘ceiling’ is effectively becoming the floor, raising medium-term concerns on fiscal sustainability and spending quality.

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“Since 2023, election cycles have lifted FD/GDP by about one percentage point with limited reversal, while revenue spending remains sticky and capex stagnates—crowding out productive investment. With aggregate state deficits already drifting above targets and SDL spreads widening, sizable pre-poll promises in TN and WB (about 2.2%/3.4% of GDP worth of additional spending) risk structurally elevating deficits,” said the report by Emkay economists Madhavi Arora and Harshal Patel.

“Our estimates suggest that these promises, if translated to actual spending, will be worth ~2.2% of GDP of extra spending, at a time when TN’s FY27BE FD/GDP is 3%,” said Emkay Global Financial Services.

While anti-incumbency is likely to have played a major role in the BJP’s win in WB, the party also laid out lavish spending promises—most notably doubling the cash transfer scheme to women to Rs 3,000 per month. This could cost up to up to 3.4% of GDP incrementally,” it said, adding that promises in the other states (Kerala and Assam) are relatively less fiscally burdensome. 

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Economic agenda

With new governments poised to take over in key states—TVK in Tamil Nadu, BJP in West Bengal and UDF in Keralam, the economic priorities and agenda that they take up is also being closely watched, given the size and economy of these states.

The economic imperatives for both the state governments in Keralam and West Bengal would be clear: to ensure financial stability. In Tamil Nadu, the new government would have to ensure that it maintains its healthy financial record and balance the populist promises.  

Tamil Nadu, for instance, is one of the most industrialised states in the country while Keralam has a sizeable population abroad and is a key source of inward remittances to India. Industrial policies to be taken up by the new government in West Bengal is being closely watched, which could also help lift its economy.

Ganapathy of Macquarie pointed out that in Tamil Nadu manufacturing as a percentage of GDP is at 25%, much higher than the pan-India average of 15-16%. “Tamil Nadu historically has relied on welfare politics, and it remains unclear how the new chief minister will approach this agenda,” he said.

Actor-turned-politician Vijay’s economic agenda has only a brief mention in TVK’s election manifesto, and it is to be seen how he firms this up. Tamil Nadu’s economy has been growing at a much faster pace than the national average—with a real growth of 10.83% in FY26 after 11.19% in FY25. Its GSDP at current prices reached Rs 31.19 lakh crore in FY25.

In contrast, West Bengal is seen to have grown by 7.6% in FY26 while Kerala is Budgeted to grow at 12% in FY26 with a GSDP of Rs 14.27 lakh crore. Significantly, a PRS report pointed out that in August 2024, the Kerala government issued an order to assess the expenditure on schemes included in the state’s five-year Plan. If the schemes are found to be inessential, plan expenditure would be reduced by 50%. This was due to the state’s high debt burden. In FY25, its fiscal deficit spiked to 3.9% of the GSDP.

West Bengal similarly has significant fiscal liabilities and low capital outlay—at about 2% of the GSDP in FY27. “With a focus on industrialisation, capex rejuvenation, inflation management, and focus on factor reforms BJP’s win in West Bengal could mark a beginning of a capex spending cycle in the state a template it followed in other States where it came to power recently—Uttar Pradesh, Odisha and Assam,” said a report by Elara Securities, adding that there could also be an uptick in industrial activity in West Bengal.