What India can learn from Indonesia’s 'zero-borrowing' welfare model

As India moves closer to its goal of becoming a $7 trillion economy by 2030, the real challenge is no longer just growth, but how that growth is funded and shared. Expanding welfare without stretching government finances has become a central policy dilemma. Indonesia’s recent experience offers a sharp and timely lesson for India: large social programmes do not have to be built on rising debt.

Under President Prabowo Subianto, Indonesia rolled out a fiscal reallocation programme in 2025 that funded welfare and development spending without increasing borrowing. Instead of raising taxes or widening the fiscal deficit, the government focused on cutting waste, enforcing compliance, and recovering lost revenue. The result was nearly $30 billion in fiscal space, created within existing budget limits.

For India, which is pursuing welfare expansion alongside fiscal consolidation, this approach offers important takeaways.


Spending better, not spending more
Indonesia’s reforms began with a close look at how public money was being used. The government sharply reduced non-essential expenditure, cutting procurement waste, trimming ceremonial and administrative costs, and scaling back low-impact spending.

According to Dr Prabhakar Patil, former Chief General Manager at Sebi and an IIT Mumbai doctorate in economics, this shift in mindset is critical. “Most governments look at welfare through the lens of additional spending. Indonesia showed that the first step is to ask where money is leaking and how efficiently the existing budget is being used,” he said.

Indonesia reportedly cut procurement waste by as much as 90 per cent, reduced printing and ceremonial expenses by three-fourths, and slashed building rental costs. Importantly, these savings did not come at the cost of essential public services.

India, too, has long struggled with inefficiencies in procurement, overlapping schemes, and administrative overheads. Experts say even modest improvements in these areas could unlock significant fiscal room.

Enforcement as a revenue strategy
Beyond cost-cutting, Indonesia focused heavily on enforcement. Illegal economic activity, often treated as a law-and-order issue, was addressed as a fiscal problem.

Large tracts of illegal palm oil plantations were brought under state control and formal taxation. Illegal mining operations were shut down or regularised. Smuggling was curbed, fines were imposed, and assets were seized in corruption cases. These steps converted informal and illegal activity into taxable revenue streams.

Dr Siva Reddy Kalluru, Faculty and Associate Dean at the Gokhale Institute of Politics and Economics, said this approach holds clear relevance for India. “India has a large informal and semi-formal economy. Strong enforcement is not just about compliance—it is also about restoring fairness and widening the tax base without raising rates,” he said.

He added that treating enforcement as a fiscal tool helps governments avoid politically sensitive choices like cutting welfare or increasing taxes.

Welfare without widening deficits
The fiscal space created through savings and enforcement was redirected into large-scale social programmes. Indonesia expanded food security, healthcare access, school infrastructure, and rural cooperatives, while keeping its fiscal deficit within the legal limit and public debt stable.

This directly challenges the assumption that welfare expansion inevitably leads to higher debt.

“Indonesia’s experience breaks the myth that care programmes must be funded through borrowing,” Dr Patil said. “It proves that disciplined reallocation can deliver social outcomes while protecting macroeconomic stability.”

India’s own welfare architecture, ranging from food support to healthcare and housing, already commands a significant share of public spending. The Indonesian model suggests that the focus should now shift to funding quality and delivery, rather than headline allocations.

Lessons for India’s growth journey
India faces structural challenges similar to Indonesia’s: leakages in public spending, illegal mining, underutilised state assets, and gaps in enforcement. Addressing these issues could reduce pressure on budgets while supporting inclusive growth.

Dr Kalluru believes the bigger lesson lies in political intent. “Fiscal reform is not only about numbers. It requires the willingness to confront vested interests and redesign how the state spends money,” he said.

As India pushes towards the ‘Viksit Bharat’ vision, the Indonesian example shows that welfare and fiscal discipline do not have to be competing goals. By spending smarter, enforcing better, and reallocating existing resources, governments can fund social priorities without passing the burden to future generations.

For policymakers in New Delhi, Indonesia’s zero-borrowing welfare model is less a template and more a reminder: growth is strongest when public money works harder, not when governments simply spend more.