The Economic Survey cited a study that estimated these transfers amount to 0.19-1.25% of the states’ gross national domestic product and 0.68%-8.26% of their total budget expenditure. Image for illustration only. | Photo credit: Getty Images/iStockphoto
In a year when four major states are gearing up for assembly elections, only one of which is ruled by the Bharatiya Janata Party (BJP), the Economic Survey 2025-26 has come out strongly against “unconditional cash transfers” (UCTs), including to women. She emphasized that while they have short-term gains, they also raise concerns about fiscal sustainability and medium-term growth.
Notably, last year’s edition of the survey noted that cash transfers and loans to targeted poorer and lower-income households had a positive impact on consumption, enabling these households to finance various basic needs and repay debts.
West Bengal, Tamil Nadu, Kerala and Assam go to polls in 2026, as does Puducherry.
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Growing cash transfers
The survey noted that aggregate expenditure on UCT’s programmes, particularly for women, is estimated to be around ₹1.7 million in the current financial year 2025-26. He added that the number of states implementing them has more than quintupled between 2022-23 and 2025-26, with around half of them estimated to be in revenue deficit.
The survey further cited a study which estimated that these transfers amount to 0.19-1.25% of the states’ gross domestic product and 0.68-8.26% of their total budget expenditure.
“Cash transfers are said to provide immediate income support and help women meet unmet health and personal needs,” the survey said. “Some see this as a return for their unpaid contribution to GDP. However, their rapid growth and persistence raise concerns about fiscal sustainability and medium-term growth, especially when not accompanied by investment in employment, skills and human capital.”
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Increasing the fiscal burden of states
The survey noted that revenue expenditure continues to make up the majority of government spending, accounting for 84% of its total expenditure in 2023–24, although slightly down from 86% in 2018–2019.
“However, within revenue expenditure, the composition has undergone a noticeable shift with an increasing inclination towards unconditional cash transfers and other liability expenditure,” the survey said.
“As these transfers absorb an increasing share of available fiscal space, the scope for expanding productive capital spending is increasingly limited, especially in an environment of constrained revenues and increased deficits,” he added.
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Fiscal compromise
The survey pointed to a trade-off that states face: additional state spending will crowd out resources for critical social and physical infrastructure unless states increase their deficits. However, deficits alone cannot increase without further deteriorating the financial health of states.
“These trade-offs are reinforced by program design: many programs lack sunset clauses or periodic reviews, increasing rigidity in revenue spending,” the survey said. “As a result, capital spending, which has a stronger and more durable impact on growth, often falls victim when fiscal pressures intensify, with adverse implications for medium-term growth.”
Published – 29 Jan 2026 21:02 IST
