The Cost of Cash Transfers: India’s Welfare Dilemma

On August 1, when the Delhi government launched a cash transfer scheme under which eligible women in the national capital would get Rs.2,500 a month, it triggered a huge debate on the burden such schemes are placing on the already strained finances of States across the country.

The launch of the Delhi Lakshmi Yojana by the Rekha Gupta–led BJP government also made many wonder whether such welfare measures run the risk of being reduced to an election gimmick as State governments, unable to implement them with complete sincerity, go on to reduce the number of beneficiaries and make it increasingly difficult for women to enrol.

Goa was the first State to implement a cash transfer scheme for women in 2013. The then Chief Minister, Manohar Parrikar, unveiled the scheme on October 2, 2012, saying it was meant to ease the inflationary pressure on families caused by the Union government’s “faulty politics”. Since 2020, several States have followed suit (with Delhi, the number of States has now grown to 17), primarily driven by competitive politics as women voters emerge as a key constituency. As the turnout of women voters grew in recent years, and at times surpassed that of men, the scheme was believed to be a major factor in the choices the women made.

According to Lekha Chakraborty, professor at the National Institute of Public Finance and Policy, the expansion of unconditional cash transfers to women across States rests in part on a well-documented behavioural regularity often termed the “good mother hypothesis”. “Empirical research consistently shows that income controlled by mothers is allocated more heavily towards children’s nutrition, health, and education than equivalent income controlled by fathers. Similar patterns appear in Mexico’s PROGRESA data and in Indian evaluations: cash transfers to women raise calorie intake, dietary diversity, and spending on schooling and healthcare,” Chakraborty said.

As per Akshay Modi of Sattva Consulting, a global impact consulting firm that engages with communities, businesses, and governments to achieve social impact at scale, there is no large-scale India-specific evidence available on the effectiveness of the cash transfer schemes, but reliance is being placed on global research, particularly from low- and middle-income countries.

“Studies show that cash transfers to women raise household consumption, majorly on food security and education, as well as savings and income. There is also evidence that they reduce risk of intimate partner violence, improve psychological well-being and women’s decision-making power within the household, which has a positive knock-on effect on children’s education, health, and overall family well-being. In a gendered society like ours, cash transfers also offer some recognition of women’s unpaid labour. Most importantly, contrary to popular perception, there is limited evidence to suggest that cash transfers increase spending on temptation goods like alcohol or tobacco,” Modi said.

Amongst the studies on the impact of cash transfers to women in India is a working paper published in July 2026 under the aegis of the Economic Advisory Council to the Prime Minister. The paper studied the impact of the Mukhyamantri Majhi Ladki Bahin Yojana in Maharashtra and the Subhadra Yojana in Odisha. Titled “Unconditional Women Cash Transfer Programmes in India: Evidence from Maharashtra and Odisha”, authored by Soumya Kanti Ghosh and K. Shagishna, it found that both schemes “generate large, statistically significant, and broadly consistent improvements in beneficiaries’ savings and consumption”.

The study found that month-end household account balances increased by around 84 per cent in Maharashtra and 45 per cent in Odisha, with absolute gains of approximately Rs.6,884 and Rs.6,887 per beneficiary, respectively. It also found that the programmes generated meaningful, positive spillovers to male members of the family, with improvements in their financial position.

Pankhuri Shah, co-founder of Project DEEP, an NGO that has carried out pilot programmes on cash transfers wherein citizens are given lump sum amounts to aid asset creation, said field experience shows the measure does more than just aid consumption. “It can change how households save, spend, and invest, especially when directed to women. Across Project DEEP’s cash-transfer programmes, a one-time Rs.65,000 transfer has been used to strengthen livelihoods and create productive assets. As much as 89 per cent of funds were invested in livelihood enhancement and asset creation, including agriculture, livestock, housing water sources, and enterprises; 68 per cent of the families in one programme reinvested in income-generating assets,” Shah said.

With a spike in the number of States offering cash transfers to women in recent years, the programme now has a fairly substantial share in State budgets and a significant impact on States’ spending patterns. According to official estimates, by the financial year 2025–26, at least 15 States were providing women with cash transfers, covering around 12 crore beneficiaries at a cumulative cost of around Rs 1.7 lakh crore.

However, there is now a growing concern about the impact of the schemes on the fiscal condition of the States, with many increasingly pruning the list of beneficiaries. In stark contrast to the enthusiasm with which the Economic Survey of 2016–17 advocated cash transfers to women, the Economic Survey of 2025–26 warned that rising revenue deficits and unconditional cash transfers across several States threaten to crowd out growth-enhancing spending.

“While these provide immediate income support, their growing scale risks increasing expenditure rigidity and crowding out resources for capital investments, including human capital,” the survey said.

According to the survey, between 2022–23 and 2025–26 alone, the number of States implementing such schemes increased more than fivefold, and half of these are estimated to be in a revenue deficit. Such transfers, the survey said, are estimated to be in the range of 0.19 per cent to 1.25 per cent of the gross State domestic product and 0.68 per cent to 8.26 per cent of the total budgetary expenditures.

Between 2018–19 and 2024–25, as per the survey, 18 States saw a decline in their revenue balances, with 10 slipping into a revenue deficit from a revenue surplus position, 5 experiencing a worsening of the revenue deficit, and 3 managing to stay in the revenue surplus territory despite a deterioration in the overall financial position.

Overall, the number of States reporting a revenue surplus reduced from 19 in 2018–19 to 11 in 2024–25, leading to an overall increase in the revenue deficit of States as a collective to 0.7 per cent from 0.1 per cent of the GDP during the corresponding period. According to the survey, a key driver of this renewed fiscal stress has been lagging revenue growth relative to nominal GDP growth, compounded by the incurring of expenditures such as discretionary unconditional cash transfers.

“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,” the survey said.

Shah said that while the question about fiscal concern is legitimate, it is important to delink the fiscal burden from cash transfers and look at the welfare portfolio as a whole. According to her, the question is not whether cash transfers should be there or not but how the entire outlay of Rs.29 lakh crore devoted to welfare schemes can be streamlined to deliver the highest value for public money.

“Currently, there is no comprehensive view available of States’ welfare schemes, impeding the ability to analyse the factors that cause a fiscal strain. What we know prima facie is that this large outlay of Rs.29 lakh crore, being spread over 4,000-plus schemes, causes fragmentation, administrative overload, and diluted citizen impact,” she said.

Meanwhile, amidst growing financial constraints, a few States have begun taking a closer look at the list of beneficiaries and pruning it. Maharashtra has, through a verification drive, removed around 92 lakh names under the Mukhyamantri Majhi Ladki Bahin Yojana, the beneficiaries of which had grown to 2.43 crore.

In West Bengal, the new BJP government has stated in the budget for 2026–27 that one crore women would benefit from the Annapurna Bhandar scheme, a sharp decline from the 2.4 crore names the previous Mamata Banerjee government had said were enrolled. In Karnataka, 6 lakh names have been removed in an ongoing verification drive. Jharkhand too has conducted drives to remove ineligible names from the list.

Cash-strapped Himachal Pradesh has rolled out its cash-transfer scheme in a phased manner, while Punjab, which is also burdened by heavy debt, launched its scheme just months ahead of the Assembly election.

In Delhi’s case, the long list of criteria is being seen as highly restrictive and the process of enrolment extremely complicated. Besides the annual family income criterion, a woman would have to fulfil the requirement of having lived in Delhi for at least 10 years, and she would be disqualified if she has more than two children.

CPI leader and women’s rights activist Annie Raja strongly criticised political parties making cash transfer promises before elections but falling short in terms of implementation after them.

Beneficiaries of the Kalaignar Magalir Urimai Thogai scheme in Salem, Tamil Nadu, on September 15, 2023. | Photo Credit: E. Lakshmi Narayanan

“It is a cynical and crooked electoral strategy that looks at women as a vote bank and takes advantage of their precarious economic condition, only to make it extremely difficult for them to get the minimal amount of money. It is like an auction at election time, when one party says Rs.1,000, the competitor says Rs.1,500 or Rs.2,000. It is also a reflection of the tragic conditions that the majority of the people live in for even this amount to make a difference to their lives,” Raja said.

She said that political parties should instead commit themselves to upholding the constitutional rights of women and ensure they have access to essential services such as quality education and healthcare. She also stressed that governments must ensure that the work of women at the grassroots such as anganwadi workers or Accredited Social Health Activists is properly recognised and decently compensated.

Experts emphasise that policymakers now need to study and ascertain what needs to be done beyond the short-term benefits provided by the cash transfers. They also call upon governments to undertake a proper evaluation of the various welfare measures and work on better targeting and delivery of cash transfers to women.

Chakraborty said: “Cash transfers ease liquidity constraints and improve immediate welfare, yet they do not by themselves generate sustained income growth.

Long-term poverty reduction and women’s economic empowerment require increased participation in productive economic activity through higher labour force participation, skills acquisition, access to markets, and reduction of unpaid care burdens.”

Modi emphasised that the States now need to put in place stronger evaluation systems to understand whether these schemes are delivering sufficient returns and how they should be designed or targeted. “This is important because once such transfers reach a large number of beneficiaries, they become politically difficult to roll back, [but they] also divert resources from other investments or from debt reduction,” he said.

Echoing this view, Shah said there is a need for a rigorous, outcome-based evaluation of the programmes, which involves understanding who benefits, what changes in the lives of the beneficiaries and at what cost, and then to use that evidence to continuously improve the design of the scheme and its targeting and delivery.

“The objective should not merely be to sustain a popular instrument but to make it increasingly effective,” Shah said.

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