India could face the prospect of sub–national bankruptcies if States continued to dole out freebies to influence the electorate, Fifteenth Finance Commission chairperson NK Singh cautioned on Tuesday, terming the political competition over such sops a “quick passport to fiscal disaster”.
Mooting the need for issuing credit ratings to States based on their fiscal health, Mr. Singh cited the example of the highly indebted State of Punjab which is expected to spend an estimated ₹17,000 crore to implement recently announced ‘freebies’ such as 300 units of free power per household.
Without referring to Punjab directly, the Finance Commission chief said “a classic example” is of a State that has become profligate and is unable to pay its bills, so it immediately rushes to the Centre for help. Beyond the devolution of revenues to the States as per the Commission’s advice, the Centre can only help States during times of distress or disasters, he pointed out.
