Power drains Punjab’s subsidy bill as doles cripple state budgets
Other economically vital states also reported high subsidy ratios
By Samreen Wani
Last Updated: Nov 06, 2025, 11:45 IST2 min
Prefer us on Google
Advertisement
Escalating subsidy bills are imposing an increasingly heavy burden on state budgets. A recent report on the State of State Finances by PRS Legislative highlights that discretionary spending is being crowded out by populist measures, with Punjab leading the list.
In FY24, Punjab’s subsidy expenditure hit a staggering 21 percent of its total revenue receipts, far exceeding the all-India average of 9 percent, indicating that a significant portion of the state’s earnings are immediately utilised by subsidy commitments.
Punjab is, however, not isolated in this. Other economically vital states, including Karnataka and Tamil Nadu (14 percent each), Maharashtra, Andhra Pradesh and Gujarat, also reported similarly high ratios dedicated to subsidies. About three-fifths of Tamil Nadu’s subsidy spending was concentrated on the public distribution system (28 percent), electricity tariff support (20 percent), and bus transport (12 percent).
While Bihar spent 8 percent of its revenue receipts on subsidies, Uttar Pradesh spent 5 percent. Several Northeastern states like Mizoram, Tripura, Assam, Sikkim, Meghalaya and Nagaland stand out with ratios less than 1 percent.
While Punjab leads in the overall ratio, Andhra Pradesh shows the sharpest growth in handout spending. Between FY20 and FY24, subsidy expenditure in Andhra Pradesh surged by 5 percentage points as a share of revenue. Karnataka and Punjab also experienced notable increases of 4 percentage points over the same period, resulting in significant inflation in costs due to rapid growth in welfare promises driven by political competition.
The power sector lies at the core of this escalating cost. The analysis shows that electricity doles dominate, especially in states where nearly the entire subsidy budget is dedicated to free or cheap power. For instance, Mizoram and Rajasthan allocate 99 percent and 95 percent, respectively, of their total subsidy bill to electricity.
Punjab dedicates 90 percent of its total subsidy bill to power. The state’s free power scheme, which successfully ensured zero electricity bills for nine out of 10 households in Punjab, consumes about 10 percent of the state’s total budget. This has, however, created immense pressure on the state discom with unpaid government subsidy and departmental dues soaring.
States such as Bihar, Andhra Pradesh, Karnataka, Telangana and Uttar Pradesh also spend a significant share of their subsidy bills on power. Together 19 states spent about 53 percent on power subsidies.
The report reflects concerns previously raised by the 15th Finance Commission regarding the long-term impact of farm loan waivers and subsidies, and the RBI’s recent recommendation for states to rationalise their subsidy expenditures to free up room for more productive spending.
First Published: Nov 06, 2025, 11:57
Subscribe NowAdvertisement
Advertisement
Advertisement