Economic Survey Warns of Fiscal Strain as State Cash Transfers Dominate Rural Spending
New Delhi: The latest Economic Survey has raised significant concerns about fiscal sustainability and medium-term growth, revealing that unconditional cash transfers (UCT) by state governments now account for nearly half of the monthly per capita consumption expenditure among India's rural population. This substantial share highlights growing dependency on direct benefit schemes, particularly when implemented without complementary investments in skilling and human capital development.
Women-Focused Transfers Reach Alarming Proportions
The survey specifically highlighted that UCT programs targeted at women could accumulate to approximately Rs 1.7 lakh crore this fiscal year as more states adopt these schemes, often timed around election cycles. Citing studies across seven states, the Economic Survey found these transfers constitute as much as 87% of monthly income for self-employed women workers and up to 24% for casual female workers.
However, this financial support comes with unintended consequences. Multiple studies indicate that unconditional cash transfers adversely affect female labor force participation, potentially creating long-term dependency rather than economic empowerment.
Growing Fiscal Burden on State Economies
The proliferation of cash transfer schemes has expanded rapidly across states, now forming a substantial portion of state-level welfare spending. According to the survey findings:
- These transfers range between 0.2% to 1.2% of state GDP
- They account for 0.7% to 8.3% of state budgetary expenditure
- Revenue deficit numbers for states have risen from 0.4% of GDP to 0.7% between 2021-22 and the last financial year
For policymakers, this trend presents a critical challenge: higher unproductive revenue expenditure squeezes capital spending that creates long-term assets and has broader economic linkages across sectors.
The Critical Trade-Offs and Potential Solutions
The Economic Survey emphasized that increased allocations to unconditional cash transfers involve clear fiscal trade-offs. Without widening deficits further, additional spending on these schemes crowds out resources for critical social and physical infrastructure development. Yet, expanding deficits risks further deterioration in states' overall financial health.
The survey proposed several potential solutions to balance welfare objectives with fiscal responsibility:
- Periodic reviews or sunset clauses that encourage better planning among beneficiaries
- Linking cash transfers to clear, verifiable actions by recipients rather than providing open-ended income support
International examples cited include:
- A Philippine scheme with built-in review and exit mechanisms
- Mexican and Brazilian programs that condition transfers on children's regular school attendance and health checkups for pregnant women and young children
These models demonstrate how welfare programs can maintain social protection while encouraging positive behavioral outcomes and maintaining fiscal discipline.
