16th Finance panel: Exit clauses must for cash transfer schemes, Pg8

Key Highlights:

• The 16th Finance Commission cautioned that increasing reliance on unconditional cash transfer schemes by states could destabilize their finances.
• These schemes now constitute 20.2% of total subsidy spending across 21 states in the 2025-26 Budget Estimates, a sharp rise from 3% in 2018-19.
• Maharashtra, Odisha, and Jharkhand have seen the steepest rise in spending on such schemes over the past two years.
• The Commission recommends periodic review, rationalization of beneficiaries, and clear exit clauses for these schemes.
• Total outlay for such transfers is projected to reach Rs 1.96 lakh crore in 2025-26, with a trend growth of 53.6% between 2018-19 and 2025-26.

Detailed Insights:

• The rise in unconditional cash transfers is partly attributed to improved delivery systems like the Jan Dhan-Aadhaar-Mobile (JAM) trinity, which reduced leakages but also made cash payments a preferred welfare instrument.
• While social security for pensioners and farmers constituted 84% of such spending in 2018-19, large cash transfer schemes now make up nearly half (47.4%) of all unconditional transfers by 2025-26.
• The Commission warned that these schemes have expanded into "large and untargeted beneficiary bases", making them inefficient and fiscally costly, potentially crowding out capital expenditure and essential services like education and health.
• Financing these schemes through off-budget borrowings or revenue assignments is fiscally imprudent and creates opacity in public accounts, practices that should be discontinued.
• Examples of large schemes include Maharashtra's Majhi Ladki Bahin Yojana, Karnataka's Gruha Lakshmi, and West Bengal's Lakshmir Bhandar.
• The Commission emphasized the need for sunset clauses, especially in schemes providing subsidies on non-merit private goods and general unconditional transfers, to ensure benefits reach the most vulnerable and reduce revenue deficits.

Key Concepts Involved:

• Unconditional Cash Transfer: Direct payments to beneficiaries without performance benchmarks or conditions on how the money is used.
• Sunset Clause: A provision in a law or regulation that automatically terminates or repeals the law after a specific time.
• Fiscal Prudence: Management of public finances with caution and restraint to avoid excessive deficits and debt.