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 unconditional cash transfer (UCT) schemes for women — Ladli Behna Yojana (Madhya Pradesh), Maiya Samman Yojana (Jharkhand), Magalir Urimai Thogai (Tamil Nadu) — typically Rs 1,000–2,500 per month
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Scale: 12 states were estimated to spend Rs 1.68 lakh crore on UCTs in 2025-26 (PRS Legislative Research) — nearly double the Union government's Rs 86,000 crore MGNREGA allocation
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Evidence for benefits: an EAC-PM Working Paper ('Unconditional Women Cash Transfer Programmes in India') on Maharashtra and Odisha finds the schemes improved beneficiaries' consumption and savings, raising household welfare — with more allocated to medical, educational and lifestyle needs
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Core argument: UCTs are simultaneously an instrument of social welfare/women's empowerment and an electoral strategy — the benefits are real, but the fiscal trade-off is serious
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Causal chain of concern: rising spending on UCTs + populist freebies (e.g. free electricity) → resources garnered via expenditure switching and higher deficits (Axis Bank report) → 'risk of crowding out' capital investment, as RBI has warned
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State finances data: consolidated state debt fell from 31% of GDP (March 2021) to 29.2% (2026 BE), but with wide variation — Punjab 46.4% of GSDP, West Bengal 38.9%, Bihar 36.8%
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RBI warning: high debt levels, growing contingent liabilities from guarantees, and cash transfer schemes pose risks to state finances
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Takeaway: fiscal sustainability of UCTs requires closer attention — states must balance the safety net against investment spending
🎯 UPSC Relevance: GS2 (welfare schemes for vulnerable sections) and GS3 (state finances, fiscal policy) — classic 'welfare vs fiscal prudence' debate; also GS1 (women's empowerment)
📝 Prelims Facts:
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Ladli Behna (MP), Maiya Samman (Jharkhand), Magalir Urimai Thogai (TN) are state women-targeted UCT schemes
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12 states' UCT spend 2025-26: Rs 1.68 lakh crore (PRS); MGNREGA Union allocation: Rs 86,000 crore
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EAC-PM = Economic Advisory Council to the Prime Minister
🔑 Key Term: Unconditional Cash Transfer (UCT) — direct income support paid without conditions on use or behaviour, unlike conditional transfers tied to outcomes like school attendance
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