India, March 18 -- On Monday, Telangana chief minister Revanth Reddy expressed his government's inability to pay dearness allowance to government employees because of the precarious fiscal situation of the state. Telangana is not the only state facing a problem in its finances. Things have become worse with more states committing themselves to populist schemes with political gains in sight.

The cash crunch is playing out differently in different states. In some states, governments are diverting funds from more important heads including capital spending to accommodate populist schemes even as the fiscal situation remains under control. In others, both the deficit and the debt are ballooning because of spending beyond means. Because states...