By all accounts, Swaminathan Aiyar remains one of India’s most lucid and compelling economic commentators. His recent column arguing that Bengal voters have moved beyond the “inequality narrative” and that rapid growth can comfortably fund both welfare and public investment deserves careful attention. Yet, precisely because of his intellectual influence, it is important to respectfully disagree where the argument risks normalising a dangerous fiscal and developmental trajectory.
At the heart of the article lies a claim that inequality, when measured more holistically—including welfare transfers—appears far less severe, and that voters prioritise opportunity over redistribution. While this may reflect electoral sentiment, it does not settle the economic question. The reliance on recalibrated Gini coefficient estimates, including those by World Bank or researchers at SP Jain, risks obscuring structural disparities rather than resolving them. Welfare transfers can soften inequality statistically, but they do not necessarily address the underlying drivers—namely unequal access to quality education, healthcare, digital infrastructure, and productive employment.
This distinction is crucial. Redistribution through cash transfers or subsidies is not the same as building capability. A nation becomes genuinely egalitarian not by compressing income gaps temporarily, but by expanding opportunity structurally. That requires sustained investment in human capital and infrastructure—areas that are increasingly under pressure due to rising fiscal commitments on non-productive expenditures.
The argument that “India’s rapid growth has so far provided enough for both freebies and public investment” is, at best, a snapshot of the present—not a guarantee for the future. Economic history offers repeated warnings against extrapolating current growth trends indefinitely. India’s growth itself is contingent upon continuous capital formation, technological upgrading, and productivity gains. These, in turn, demand large and sustained public and private investments.
Here lies the core concern: the expanding culture of electoral freebies risks crowding out precisely those investments that sustain long-term growth. This is not a theoretical worry. Chief Economic Advisor, V Anantha Nageswaran has explicitly cautioned that unchecked welfare commitments could constrain fiscal space for infrastructure and social sector spending. When a larger share of state budgets is pre-committed to consumption subsidies, the flexibility to invest in future growth diminishes.
Empirical evidence from states reinforces this concern. Several Indian states now carry debt levels exceeding 30–35% of their Gross State Domestic Product (GSDP). Punjab, Rajasthan, and West Bengal are among those with particularly high debt burdens, while even relatively stronger states like Tamil Nadu and Maharashtra are witnessing upward fiscal pressures due to expanding welfare schemes. Interest payments alone consume a growing share of state revenues, leaving less room for capital expenditure.
Take the case of Karnataka’s free bus travel scheme. While politically popular, it has reportedly strained the finances of state transport undertakings and altered commuter patterns in ways that have affected urban transport viability, including metro systems. Similarly, Maharashtra’s “Ladki Bahin” scheme and other cash transfer programmes have added recurring fiscal commitments that must be financed either through higher borrowing or reallocation from other heads.
The broader issue is not whether welfare is necessary—it unquestionably is—but whether its design is fiscally sustainable and economically productive. There is a qualitative difference between targeted welfare that enhances capabilities (such as education, healthcare, or skilling) and untargeted consumption subsidies that create long-term dependency without improving productivity.
This is where the debate intersects with the future of India’s economic ambitions. As Mustafa Suleyman argues in his book The Coming Wave, the next phase of global competition will be defined by technological capabilities—particularly in artificial intelligence, synthetic biology, and advanced computing. Nations that invest aggressively in research, digital infrastructure, and human capital will dominate the economic landscape.
For India, this is not optional—it is existential. Building indigenous capabilities in AI, semiconductor manufacturing, biotechnology, and advanced manufacturing requires massive upfront investment. Digital public infrastructure, high-quality data ecosystems, research institutions, and skilled talent pipelines cannot be funded as residual expenditures after meeting ever-expanding welfare commitments. They must be prioritised.
The risk, therefore, is not immediate fiscal collapse, but gradual erosion of growth potential. When public resources are increasingly directed toward short-term consumption, the economy may continue to grow for a while, but the quality and sustainability of that growth deteriorate. Rising public debt compounds the problem. Even if India’s overall debt-to-GDP ratio remains manageable today, persistent fiscal deficits at both Union and state levels can create vulnerabilities—especially in a global environment of higher interest rates and uncertain capital flows.
The notion that voters are indifferent to inequality because they aspire for opportunity rather than redistribution is both insightful and incomplete. Aspirations are indeed rising, but they are anchored in the expectation of upward mobility. If the state substitutes structural reform with fiscal handouts, it risks undermining the very pathways through which that mobility is achieved.
Moreover, the political economy of freebies is inherently self-reinforcing. Once one state introduces a large welfare scheme, others face pressure to follow suit, creating a competitive spiral. Over time, this can lead to a “race to the bottom” in fiscal discipline, where electoral incentives override long-term economic prudence.
None of this implies a return to austere, minimalist governance. On the contrary, a strong state is essential—but its strength must lie in enabling productivity, not perpetuating dependency. Investments in education, healthcare, nutrition, digital connectivity, and urban infrastructure yield long-term dividends by enhancing the productive capacity of citizens. These are not “freebies;” they are foundational investments.
A more balanced approach would involve rationalising subsidies, better targeting through technology, and gradually shifting expenditure toward capital formation and capability-building. Fiscal responsibility frameworks at both Union and state levels must be strengthened and adhered to more rigorously. Transparency in off-budget borrowings and contingent liabilities is equally critical.
While the inequality narrative may indeed be losing electoral resonance in places like West Bengal, it would be premature—and potentially dangerous—to infer that the underlying economic concerns have disappeared. Growth can temporarily mask imbalances, but it cannot indefinitely compensate for misplaced priorities.
India stands at a pivotal juncture. The choices it makes today—between consumption and investment, between short-term appeasement and long-term capability—will determine whether it emerges as a truly advanced economy or remains constrained by its own fiscal contradictions. Respectfully, my humble opinion is that it is here that the optimism of Swaminathan Aiyar must be tempered with caution.
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