Despite the debate over blurred boundary between genuine welfare and “freebies”, economic policy remains inseparable from political strategy

The Union Budget is the backbone of governance in a large and diverse country like India, where economic disparity varies considerably from one region to another and from one state within a region to another. The budget outlines how the government plans to raise and spend public money in a financial year, crucial for converting policy promises into action and managing finite resources to drive economic growth and social welfare. However, beyond tax changes and spending announcements, the budget document is never only about economics. The political dimension of a budget can never be ignored. Precedents indicate that fiscal priorities are influenced by elections or other considerations to send a clear message to the electorate. 

Because the political dimension has a significant correlation to the annual accounting exercise, this year’s budget, scheduled for Sunday, will be closely watched for signs of targeted allocations or policy incentives for four states going to polls in the next few months—Tamil Nadu, West Bengal, Kerala, and Assam—even as the government stresses fiscal discipline and the Viksit Bharat story. Except for Assam, the other three poll-bound states have non-NDA governments. Political observers and analysts do not rule out electoral compulsions for the finance minister to announce targeted inducements for these states or signal responsiveness to regional demands, though prudence and not populism should be the underlying theme of the budget. 

In recent years, the central government has been accused of overtly using budgetary signalling to influence poll narratives. For example, the interim budget in 2019 read like the BJP’s election manifesto for the Lok Sabha election two months later. Another prominent example is Bihar, which went to polls in November and was a centrepiece of last year’s budget in July—support for agriculture, tourism circuits, and infrastructure corridors. While political incentives or poll-driven “sops” cannot be ruled out entirely, economic experts stress that the government will be under pressure to manage the fiscal deficit at around 4 to 4.5 per cent of the GDP. This implies that the scope for election-driven largesse devoid of economic justification will be limited. This will require measured expansion in capital outlay, rather than headline-grabbing handouts. 

It will be interesting to see whether politics dominates over economics amid the continuing economic uncertainty driven by global headwinds and Donald Trump’s trade war and the delay in the India-US trade deal. Therefore, what should be looked out for in the budget is whether Union finance minister Nirmala Sitharaman announces new development measures for West Bengal and Kerala, where the promise of ushering in an era of rapid development, which will go well with the government’s Viksit Bharat narrative, becomes the BJP-led NDA’s major poll issue. For, stressing the message of “double engine” government will help the BJP increase its vote share in Kerala and bolster its chances in Bengal.

Tamil Nadu is somewhat a different case. It is the second largest state in terms of the GDP, trailing Maharashtra with strong industrial output and a 9 per cent contribution to the national GDP. It also ranks high in per capita income. But politically, the Hindutva party is on a weak footing in both Tamil Nadu and Kerala, though its influence has been steadily growing. In West Bengal, the BJP has emerged as the main political opponent to the ruling TMC after its impressive performance in the 2019 Lok Sabha poll and the 2021 assembly election. Bengal is a state where the BJP has been expending a lot of political capital over the past decade, hoping to form its maiden government there. But the TMC has so far given a determined fight to ward off the BJP.  Portraying the BJP as an “outsider” while accusing the centre of “punishing” the state by choking financial resources, TMC chief and Bengal Chief Minister Mamata Bannerjee has been playing the local card quite well. A tit-for-tat street fighter, Mamata is no pushover, though she is fighting anti-incumbency for a fourth straight term. An announcement of a few big social and infrastructural projects could help the BJP set the narrative of development because of the “double engine” government in Bengal. But still, it is going to be a tough walk for the BJP to dislodge the TMC from power. In Assam, however, the BJP has already been in power for the last 10 years, and it may not need big project announcements to retain control over the state, where the Congress-led opposition seems unlikely to pose a strong threat to the BJP’s dominance.

Both Bengal and Tamil Nadu have vibrant political landscapes and strong regional identities. In the lead-up to the elections in both states, political experts expect intensification of welfare programmes by respective state governments that could have bearing on the poll outcomes. In Kerala, fiscal constraints because of high debt and social commitments may prevent the state government from loosening its purse strings on poll-driven populist measures. But then the BJP is a fledgling political player in Kerala, though the central incentive might influence an improvement in its vote share. As for Assam, with significant central assistance already in place with flagship schemes, experts expect the Union budget to fine-tune central incentives according to regional priorities.

Over the years, subsidies and welfare schemes have played a key role in state politics, with the Union budget setting the narrative during election years. That tradition is unlikely to be broken on February 1, as the budget will be presented well before the model code of conduct kicks in. Despite the recurring debate over the blurred boundary between genuine welfare and “freebies”, economic policy remains inseparable from political strategy. Considering the turbulent relationship between the BJP-ruled centre and the three poll-bound non-NDA states, Budget 2026 offers the centre multiple levers to soften its image in these states, particularly Bengal, where the language of “dues”, “funds”, and “rights” under fiscal federalism dominates everyday conversation. 

Given the importance of the assembly elections for the BJP, and considering that fiscal policy is not merely economics but also an electoral terrain, it would not be a surprise if the budget features a slew of promises and scheme enhancements for the poll-bound states, besides project-linked funding and infrastructure support.