<p>India’s budgetary allocation to unconditional cash transfers (UCT) rapidly increased from 0.1% of GDP in 2016 to 0.9% of GDP in 2026. Official Government of India sources and researchers caution that the explosion of cash transfers will increase the future debt burden of the Centre and the states, crowd out productive investment, and adversely affect the credit rating of government bonds. Despite official acknowledgment, the size of cash transfers and related issues are worsening. This reveals a structural political economy paradox: all parties, irrespective of ideology, are politically incentivised to expand cash transfers despite the economic risks.</p>.<p>Welfare promises have always been an effective election strategy in India. However, the nature of these promises changed from slogans to the distribution of foodgrain, later expanding to various consumer goods, free utilities (water and electricity), and farm loan waivers. With the Jan Dhan Accounts-Aadhaar-Mobile (JAM) infrastructure, the rise of competitive voter-targeted cash transfers is a predictable progression.</p>.Limits of welfarism.<p>As cash transfer schemes proved politically effective, parties that once criticised them eventually adopted similar strategies. For example, during the 2025 West Bengal state Assembly elections, the Lakshmir Bhandar Scheme, which offered Rs 1,500/month to women, became the Trinamool Congress (TMC)’s pivotal election promise. The BJP, which coined the term “revdi culture” to criticise cash transfer politics, went on to promise Rs 3,000/month for women during the recent West Bengal Assembly elections. Furthermore, it offered Rs 3,000/month for unemployed youth and Rs 9,000 as annual support to farmers. After winning the 2025 Delhi Legislative Assembly elections, the BJP continued the Aam Aadmi Party (AAP)’s free water and electricity schemes.</p>.<p>Four factors have made cash-transfer politics inevitable in the country. First, in an era of information overload, it is difficult for any political party to credibly communicate its welfarist achievements, and it is equally difficult for voters to track and evaluate them. Cash transfers are popular because they entail low administrative costs, are fungible, simple to communicate, and easy for voters to understand.</p>.<p>Second, UCT politics in India can be understood as a case of ‘Prisoner’s Dilemma’ where each political party knows that if they all unanimously agree to campaign on governance and development instead of promising cash transfers or any other populist measure, the collective outcomes will be: healthy state finances (low fiscal risks), sustainable growth, and efficient delivery of public services. But no single party can make that choice unilaterally, without risking losing the election. Therefore, the dominant strategy is to offer equal or more cash than the rival parties. The competitive bidding cycles are not merely a political choice but an inevitable outcome.</p>.<p>Third, India’s electorate is frustrated by the persistent, and in several cases worsening, structural problems such as unemployment among the educated, low-quality jobs, income inequality, household financial stress, and gender-based economic and social vulnerabilities. Addressing these challenges requires long-term institutional reforms and sustained political commitment. Alternatively, cash transfer promises offer a tangible, personal, and emotional appeal to the voters. As long as a country has genuine unmet welfare needs, any welfare promise, whether cash transfer or otherwise, can always become a powerful electoral tool.</p>.<p>Lastly, as women participate more actively in public decision-making, parties are increasingly introducing schemes targeting them. The political traction gained by schemes such as Lakshmir Bhandar (in West Bengal), Gruha Lakshmi (in Karnataka), Subhadra Yojana (in Odisha), and Maiya Samman Yojana (in Jharkhand) is illustrative. In FY 2025-26, Rs 1.68 lakh crore (0.5% of GDP), was allocated to women-centric unconditional state cash transfers.</p>.<p><strong>Balancing welfarism with efficiency</strong></p>.<p>The UCT debate is often simplified into a “good versus bad” argument, leaving little room for nuanced discussions on the design, targeting, expenditure quality, and implementation of these schemes.</p>.<p>Welfare and redistribution of income and wealth are one of the core functions of the government. The Directive Principles of State Policy also encourage states to promote social and economic justice. Well-designed cash transfer schemes are theoretically the most efficient/least distortionary instrument of welfare and redistribution. Research also shows these schemes are effective in poverty alleviation, women’s empowerment, improving educational and health outcomes, and overall living conditions. Problems arise when welfare schemes are designed merely to win elections by outbidding rivals. In their current form, UCT schemes fail to create long-term productive assets and support future revenue growth.</p>.<p>Fiscal sustainability of UCT is a commonly raised concern, but the decisive criterion must be expenditure quality. Chhattisgarh, Jharkhand, and Odisha illustrate this distinction: these three mineral-rich and developmentally backward states generated substantial non-tax revenue in recent years, yet their outcomes vary. Odisha anchored its welfare expenditure to stable revenue flows, maintained lower debt, and consistently improved its SDG score from 52 in 2018 to 67 in 2024. Jharkhand and Chhattisgarh were relatively less successful in converting their resource endowment into developmental outcomes.</p>.Cash transfers create jobbers, not jobs.<p>Punjab and Kerala are unique examples of states with high SDG scores and high fiscal stress without introducing UCT. Punjab improved its SDG score from 60 in 2018 to 76 in 2024, despite unsustainable levels of public debt (47% of GSDP). Kerala’s public debt accumulated over decades as it became a frontrunner in development.</p>.<p>India’s cash transfer explosion was driven by political competition, weakened by poor design, and sustained by accountability gaps. The solution lies in designing fiscally responsible welfare schemes anchored to measurable outcomes. The goal should be to design systems that ultimately eliminate the need for such transfers in the long run.</p>.<p><strong>(The writer is an assistant professor at Vidyashilp University, Bengaluru)</strong></p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
<p>India’s budgetary allocation to unconditional cash transfers (UCT) rapidly increased from 0.1% of GDP in 2016 to 0.9% of GDP in 2026. Official Government of India sources and researchers caution that the explosion of cash transfers will increase the future debt burden of the Centre and the states, crowd out productive investment, and adversely affect the credit rating of government bonds. Despite official acknowledgment, the size of cash transfers and related issues are worsening. This reveals a structural political economy paradox: all parties, irrespective of ideology, are politically incentivised to expand cash transfers despite the economic risks.</p>.<p>Welfare promises have always been an effective election strategy in India. However, the nature of these promises changed from slogans to the distribution of foodgrain, later expanding to various consumer goods, free utilities (water and electricity), and farm loan waivers. With the Jan Dhan Accounts-Aadhaar-Mobile (JAM) infrastructure, the rise of competitive voter-targeted cash transfers is a predictable progression.</p>.Limits of welfarism.<p>As cash transfer schemes proved politically effective, parties that once criticised them eventually adopted similar strategies. For example, during the 2025 West Bengal state Assembly elections, the Lakshmir Bhandar Scheme, which offered Rs 1,500/month to women, became the Trinamool Congress (TMC)’s pivotal election promise. The BJP, which coined the term “revdi culture” to criticise cash transfer politics, went on to promise Rs 3,000/month for women during the recent West Bengal Assembly elections. Furthermore, it offered Rs 3,000/month for unemployed youth and Rs 9,000 as annual support to farmers. After winning the 2025 Delhi Legislative Assembly elections, the BJP continued the Aam Aadmi Party (AAP)’s free water and electricity schemes.</p>.<p>Four factors have made cash-transfer politics inevitable in the country. First, in an era of information overload, it is difficult for any political party to credibly communicate its welfarist achievements, and it is equally difficult for voters to track and evaluate them. Cash transfers are popular because they entail low administrative costs, are fungible, simple to communicate, and easy for voters to understand.</p>.<p>Second, UCT politics in India can be understood as a case of ‘Prisoner’s Dilemma’ where each political party knows that if they all unanimously agree to campaign on governance and development instead of promising cash transfers or any other populist measure, the collective outcomes will be: healthy state finances (low fiscal risks), sustainable growth, and efficient delivery of public services. But no single party can make that choice unilaterally, without risking losing the election. Therefore, the dominant strategy is to offer equal or more cash than the rival parties. The competitive bidding cycles are not merely a political choice but an inevitable outcome.</p>.<p>Third, India’s electorate is frustrated by the persistent, and in several cases worsening, structural problems such as unemployment among the educated, low-quality jobs, income inequality, household financial stress, and gender-based economic and social vulnerabilities. Addressing these challenges requires long-term institutional reforms and sustained political commitment. Alternatively, cash transfer promises offer a tangible, personal, and emotional appeal to the voters. As long as a country has genuine unmet welfare needs, any welfare promise, whether cash transfer or otherwise, can always become a powerful electoral tool.</p>.<p>Lastly, as women participate more actively in public decision-making, parties are increasingly introducing schemes targeting them. The political traction gained by schemes such as Lakshmir Bhandar (in West Bengal), Gruha Lakshmi (in Karnataka), Subhadra Yojana (in Odisha), and Maiya Samman Yojana (in Jharkhand) is illustrative. In FY 2025-26, Rs 1.68 lakh crore (0.5% of GDP), was allocated to women-centric unconditional state cash transfers.</p>.<p><strong>Balancing welfarism with efficiency</strong></p>.<p>The UCT debate is often simplified into a “good versus bad” argument, leaving little room for nuanced discussions on the design, targeting, expenditure quality, and implementation of these schemes.</p>.<p>Welfare and redistribution of income and wealth are one of the core functions of the government. The Directive Principles of State Policy also encourage states to promote social and economic justice. Well-designed cash transfer schemes are theoretically the most efficient/least distortionary instrument of welfare and redistribution. Research also shows these schemes are effective in poverty alleviation, women’s empowerment, improving educational and health outcomes, and overall living conditions. Problems arise when welfare schemes are designed merely to win elections by outbidding rivals. In their current form, UCT schemes fail to create long-term productive assets and support future revenue growth.</p>.<p>Fiscal sustainability of UCT is a commonly raised concern, but the decisive criterion must be expenditure quality. Chhattisgarh, Jharkhand, and Odisha illustrate this distinction: these three mineral-rich and developmentally backward states generated substantial non-tax revenue in recent years, yet their outcomes vary. Odisha anchored its welfare expenditure to stable revenue flows, maintained lower debt, and consistently improved its SDG score from 52 in 2018 to 67 in 2024. Jharkhand and Chhattisgarh were relatively less successful in converting their resource endowment into developmental outcomes.</p>.Cash transfers create jobbers, not jobs.<p>Punjab and Kerala are unique examples of states with high SDG scores and high fiscal stress without introducing UCT. Punjab improved its SDG score from 60 in 2018 to 76 in 2024, despite unsustainable levels of public debt (47% of GSDP). Kerala’s public debt accumulated over decades as it became a frontrunner in development.</p>.<p>India’s cash transfer explosion was driven by political competition, weakened by poor design, and sustained by accountability gaps. The solution lies in designing fiscally responsible welfare schemes anchored to measurable outcomes. The goal should be to design systems that ultimately eliminate the need for such transfers in the long run.</p>.<p><strong>(The writer is an assistant professor at Vidyashilp University, Bengaluru)</strong></p><p><em>Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.</em></p>
