Economic Survey Flags Fiscal Populism Risks in States, Warns of Sovereign Borrowing Impact

• The Economic Survey highlights growing concerns over fiscal populism, crowding out of capital expenditure by cash transfers, and rising revenue deficits in Indian states.
• It warns that fiscal indiscipline at the state level can negatively impact sovereign borrowing costs, as markets price government debt on a consolidated basis.
• Unconditional Cash Transfers (UCTs) have expanded rapidly in several states, with estimated spending reaching Rs 1.7 lakh crore for FY26, particularly for women.
• The Survey stresses the need for coordinated fiscal discipline across all government levels to focus on productive capacity and income growth, rather than permanent expenditure commitments.
• Strengthening the fiscal capacity of local bodies is also recommended to improve expenditure efficiency and investment outcomes at the grassroots level.

Why It Matters: Economic Survey warns states' fiscal populism and rising deficits threaten sovereign borrowing costs and growth.