Cash transfers in India: The safety net and the trade-off
Practice PYQs on this topic
500+ questions on Economy with explanations
📌 Summary:
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Context: several states run women-centric unconditional cash transfer schemes — Ladli Behna Yojana (MP), Maiya Samman Yojana (Jharkhand), Magalir Urimai Thogai (Tamil Nadu) — typically Rs 1,000-2,500 per month; they double as social welfare instruments and electoral strategy
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Scale (key data): 12 states were estimated to spend Rs 1.68 lakh crore on unconditional cash transfers in 2025-26 (PRS Legislative Research) — nearly double the Union government's Rs 86,000 crore MGNREGA allocation for the same year
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Evidence of benefits: EAC-PM Working Paper 'Unconditional Women Cash Transfer Programmes in India' (studying Maharashtra and Odisha) finds improved consumption and savings of beneficiaries and higher household welfare, with more spent on medical, educational and lifestyle needs
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Trade-off (causal chain): resources for transfers and freebies like free electricity are garnered through expenditure switching and higher deficits (Axis Bank report) → states' capacity to spend on other areas, especially capital investment, shrinks; RBI warns such schemes "run the risk of crowding out" investments
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Fiscal stress data: consolidated state debt fell from 31% (March 2021) to 29.2% of GDP (2026 BE), but with wide variation — Punjab 46.4% of GSDP, West Bengal 38.9%, Bihar 36.8%; RBI flags high debt, growing contingent liabilities from guarantees and cash transfer schemes as risks to state finances
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Bottom line: cash transfers deliver real welfare and empowerment gains, but their fiscal sustainability and crowding-out effects need closer attention
🎯 UPSC Relevance: GS2 — welfare schemes, DBT vs in-kind debate; GS3 — state finances, fiscal federalism, freebies vs merit goods debate
📝 Prelims Facts:
- 12 states estimated to spend Rs 1.68 lakh crore on unconditional cash transfers in 2025-26 (PRS)
- Union MGNREGA allocation 2025-26: Rs 86,000 crore
- Punjab's debt: 46.4% of GSDP; West Bengal 38.9%; Bihar 36.8%
🔑 Key Term: Unconditional Cash Transfer — direct income support paid without behavioural conditions (unlike conditional transfers tied to school attendance, vaccination etc.)
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