Kumar Ayush

The seed for this post was laid by a group project I did as part of my coursework in Public Policy

My uncle joke is that my wife, who identifies as a woman, is certainly in favour of an unconditional cash transfer to her.

Where we are

Magalir Urimai Thogai in Tamil Nadu, Mukhyamantri Ladli Behna Yojana in Madhya Pradesh, Gruha Laxmi Yojana in Karnataka, and several other representatives of diversity in the Indian Union all offer an unconditional cash transfer to a working-age woman in their state. The earliest recent wave started in Assam with the Orunodoi scheme in 2020 which offers ₹ 1250 a month for an annual cost of ₹ 5000 crore to the state.

Across 12 states, the Economic Survey 2025-2026 estimates a total expenditure of about ₹ 1.7 lakh crore. Samagra Shikhsa scheme, which is responsible for improving rural education gets a budget of ₹ 38,000 crore in the same year. The comparison is to argue that UCTW is an expensive policy.

Is it worth it?

There are few incentives for the politician to answer this, because this is a popular electoral tool. In fact, West Bengal 2026 elections had a provision to double the UCTW amount from ₹ 1500 to ₹ 3000 a month, and the winning party delivered.

However, from an economic perspective, the Economic Survey does a great job of answering this. I can get away with a direct quote of Box II.7:

Unconditional cash transfers (UCTs) have expanded rapidly across several States and now form a growing share of State-level welfare spending. Aggregate spending on UCT programmes, particularly for women, is estimated at approximately ₹1.7 lakh crore for FY26. The number of States implementing them increased more than fivefold between FY23 and FY26, with around half of these States estimated to be in revenue deficit. Singh (2025) assessed such transfers to be in the range of 0.19 per cent to 1.25 per cent of GSDP and 0.68 per cent to 8.26 per cent of the total budgetary expenditures. She estimates that cash transfers account for a significant share of the monthly income of female casual labourers (11 to 24 per cent) and self-employed workers (11 to 87 per cent), across 7 States where the detailed study was undertaken. They reportedly account for 40 to 50 per cent of the Monthly Per Capita Consumption Expenditure (MPCE) of at least half of the rural population.

It is argued that cash transfers provide immediate income support, helping women meet unmet health and personal needs. Some view it as a return for their unpaid contribution to the GDP. 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 capital. Reports indicate they adversely affect female labour force participation. Moreover, this expansion has occurred amid constrained fiscal space. The combined gross fiscal deficit of States rose from 2.6 per cent of GDP in FY22 to 3.2 per cent in FY25PA, while the combined revenue deficit increased from 0.4 per cent to 0.7 per cent of GDP, indicating continued borrowing to finance revenue expenditure. Outstanding liabilities stood at about 28.1 per cent of GDP in FY25. Committed expenditures i.e., salaries, pensions, interest payments, and subsidies, absorbed about 62 per cent 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. These trade-offs are reinforced by programme design: many schemes lack sunset clauses or periodic reviews, increasing rigidity in revenue expenditure. As a result, capital expenditure, whose growth impact is stronger and more durable, often becomes the casualty when fiscal pressures intensify, with adverse implications for medium-term growth.

Evidence supports these concerns. A recent NBER meta-analysis covering 115 randomised evaluations across 72 UCT programmes in 34 low- and middle-income countries finds that while UCTs improve consumption, food security, and short-term income stability, they do not consistently improve child nutrition, educational outcomes, or enable sustained exits from poverty. Such outcomes depend critically on complementary public services and employment opportunities, underscoring that UCTs are not substitutes for investments in health, education, nutrition, childcare, or growth-enhancing public expenditure.

Several countries have linked cash transfers to clear, verifiable actions by beneficiaries, rather than providing open-ended income support. In Mexico's Progresa/Oportunidades, families received cash only if children attended school regularly and pregnant women and young children visited health clinics for check-ups and nutrition monitoring. Payments were stopped if these conditions were not met, and households were periodically reassessed. Brazil's Bolsa Família followed a similar approach: continued eligibility required minimum school attendance and compliance with basic health requirements such as immunisation and maternal care. These conditions ensured that public spending directly supported education, health, and nutrition outcomes, not just consumption.

Some programmes also have built-in exit or review mechanisms. In the Philippines' Pantawid Pamilyang Pilipino Program, benefits were time-limited and subject to regular reassessment, with families expected to "graduate" once conditions improved. In contrast, a few pilots went further: the Opportunity NYC programme in the United States was explicitly designed as a time-bound experiment, where families earned cash rewards for meeting education, health, and work-related targets, and the programme ended after evaluation. These experiences show that cash support can be designed as conditional, review-based, and time-bound, reducing long-term fiscal rigidity while strengthening human capital outcomes-features largely absent in fully unconditional transfer schemes.

Taken together, these considerations argue for careful reprioritisation within State budgets. Preserving fiscal space for capital formation and human-capital investment yields stronger and more persistent gains in household incomes, labour productivity, and welfare than a steady expansion of open-ended UCTs. While the Centre's incentives have supported higher State capital outlays in recent years, sustaining growth will depend on complementary discipline within revenue expenditure, so that short-term income support does not erode the very investments on which inclusive, medium-term prosperity ultimately rests.

How we got here

Look, unconditional cash transfers to women are better than unconditional cash transfers. There are sociological studies that show that women will spend better on the welfare of the entire household. Unconditional cash transfers are also better than conditional cash transfers. You can find economically oriented analysts arguing for it a decade ago, and socially oriented folks arguing against it. [3]

From Kapur et al. (2008),

Once one adds the remaining CSS [centrally sponsored schemes] and the oil bonds for the last quarter of 2007-08, total expenditures on CSS and subsidies will comfortably exceed the Rs 1,78,765 crore that is the states' share of central tax revenue. Is this enormous expenditure through centralised mechanisms the best way of improving the welfare of India's poor and achieving India's development objectives? For instance if these budgetary trends continue, these expenditures will soon be sufficient to transfer Rs 1 crore annually to each panchayat - more than an order of magnitude of what they receive today. Might that be a better way to achieve these goals?

They conclude well:

Besides its strong normative and practical underpinnings, our approach has one large advantage; it must be judged against the status quo, which involves a bar of performance that should be easy to surpass. Even so, governments are reluctant to leap into the unknown. One suggestion would be to start the cash transfer scheme in those districts where the current performance of CSS is especially poor and where poverty is severe. Rigorous evaluation of performance should be an inherent part of the design, and extensions of the programme can benefit from this evaluation. However, it is important that sufficient flexibility be given to the PRIs and local governments to devise their own solutions, for one PRI's nectar can be another's poison. We consider this potential discovery of alternative delivery mechanisms to be a significant source of strength for our proposal.

At that point in time, there were trivial counters to this proposition, such as being part of banking infrastructure among your target population is itself a pipe dream. Hence, the friction of direct benefit transfers is much higher than the benefits.

Well, a decade later, this problem was solved. We now had relatively deep penetration of digital banking infrastructure. However, this was a necessary but not a sufficient condition. The idea has now caught on fire, and we have unconditional transfers without replacing conditional transfers.

It is clear to the analyst and government alike that the structural reform of investing more in education and healthcare, both in terms of capex and opex is the right answer; however, neither thinks it is a realistic option to go forward with.

I am personally a recurring failure in taking care of my plants and am slowly learning. One of my first learnings was to learn what definitely does not make a plant grow faster — more water, and pulling at it. [4]

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References

1. Government of India, Ministry of Finance. (2026). Economic Survey 2025–26, Box II.7. https://www.indiabudget.gov.in/economicsurvey/
2. Kapur, D., Mukhopadhyay, P., & Subramanian, A. (2008). The case for direct cash transfers to the poor. Economic and Political Weekly, 43(15). https://casi.sas.upenn.edu/sites/default/files/iit/Kapur%20et%20al.pdf
3. Drèze, J. (n.d.). Replacing welfare schemes with cash transfers would be a mistake [Interview]. Governance Now. https://www.governancenow.com/views/interview/interview-jean-dreze-development-economist
4. Havel, V. (1992). Summer Meditations. Knopf. — "I realize with fright that my impatience for the re-establishment of democracy had something almost communist in it; or, more generally, something rationalist. I had wanted to make history move ahead in the same way that a child pulls on a plant to make it grow more quickly. I believe we must learn to wait as we learn to create. We have to patiently sow the seeds, assiduously water the earth where they are sown and give the plants the time that is their own. One cannot fool a plant any more than one can fool history."