Survey Warns Cash Transfers Strain State Finances
India’s Economic Survey 2025–26 has warned that the rapid expansion of unconditional cash transfers (UCTs) by several state governments is putting pressure on public finances and may weaken their ability to invest in long-term growth. The report said UCTs are increasingly taking up a larger share of state welfare spending and contributing to rising revenue deficits.
Rising Spending and Fiscal Risks
The survey noted that many states now spend significant amounts on cash handouts, particularly schemes targeted at women and other vulnerable groups. While these transfers provide immediate income support, the report cautions that their scale could reduce funds available for infrastructure, health, education and other growth-enhancing public investments.
Impact on Borrowing and Growth
According to the survey, increased reliance on cash transfers may also affect states’ fiscal discipline and borrowing costs by crowding out capital expenditure. It urged rethinking the design of welfare programmes to ensure they are fiscally sustainable and better balanced with investment in human capital and infrastructure.
