MUMBAI: Direct cash transfers to voters, especially to women ahead of the elections, which has been increasingly adopted by all political parties in recent years, have long-term viability risks, warns the economic survey.
Almost all states have one form or another of cash transfers now, especially in the run-up to polls when politicians of all hues compete to offer higher cash pay-outs to voters. Though Prime Minister Modi was initially against such freebies, right before the recent Bihar election, the NDA government of which the BJP was a partner offered Rs 10,000 to each household and came back to power with a better margin.
“Unconditional cash transfers (UCTs) in several states pose serious fiscal risks, raising difficult fiscal and economic questions,” the survey said Thursday.
While the survey acknowledges the benefits of these schemes such as immediate income support, it warns that their expanding scale, continued use and design risks undermine state finances and displace growth-enhancing public spending.
The survey notes that the aggregate spending on UCT programmes, particularly for women, is estimated at Rs 1.7 trillion for FY26. The number of states implementing them increased more than five-fold between FY23 and FY26, with around half of these states estimated to be in revenue deficit, the survey said quoting data from PRS Legislative, a New-Delhi based think-tank.
Such transfers range from 0.19% to 1.25% of gross state domestic product and can account for as much as 8.26% of total state budgetary expenditure, the survey said.
However, their rapid scale-up and persistence raise concerns about fiscal sustainability and medium-term growth, particularly when not complemented by investments in employment, skills, and human capita, the survey warned. It also suggested that such transfers may adversely impact female labour force participation.
The combined gross fiscal deficit of states rose from 2.6% of GSDP in FY22 to 3.2% in FY25, while the combined revenue deficit increased from 0.4% to 0.7% of GSDP, indicating continued borrowing to finance revenue expenditure, according to the survey. Outstanding liabilities, meanwhile, stood at about 28.1% of GDP in FY25.
Committed expenditures such as salaries, pensions, interest payments, and subsidies absorbed about 62% of states’ revenue receipts in FY24, leaving limited fiscal room.
“In this context, higher allocations to UCTs involve clear trade-offs. Unless deficits widen further, additional spending will crowd out resources for critical social and physical infrastructure. But deficits cannot widen any further without causing further deterioration in the overall financial health of the state,” the survey noted.