The safety net and the trade-off, Pg12

Key Highlights:

• Several Indian states have introduced unconditional cash transfer schemes for women, such as Ladli Behna Yojana (Madhya Pradesh), Maiya Samman Yojana (Jharkhand), and Magalir Urimai Thogai (Tamil Nadu).
• These schemes typically involve monthly transfers ranging from Rs 1,000 to Rs 2,500.
• In 2025-26, 12 states are estimated to spend Rs 1.68 lakh crore on these transfers, significantly more than the Union government's Rs 86,000 crore allocation for MGNREGA.
• A study by EAC-PM found that these schemes improved beneficiaries' consumption and savings, enhancing household welfare.
• Concerns exist regarding the impact of these schemes on state finances, with the Reserve Bank of India (RBI) warning of "crowding out" investments.

Cash Transfers.png

Detailed Insights:

• Unconditional cash transfers serve as instruments for social welfare, women's empowerment, and electoral strategies for political parties.
• The EAC-PM Working Paper Series study, examining schemes in Maharashtra and Odisha, highlighted increased spending on medical, educational, and lifestyle purposes by beneficiaries.
• The RBI has expressed concerns that increased state spending on such schemes and populist measures like free electricity could affect other developmental expenditures.
• According to an Axis Bank report, resources for these schemes are often garnered through expenditure switching and higher deficits.
• While the consolidated debt of states has decreased to 29.2% of GSDP in 2026 (budget estimates), significant variations exist, with Punjab at 46.4%, West Bengal at 38.9%, and Bihar at 36.8%.
• High debt levels, growing contingent liabilities from guarantees, and cash transfer schemes pose risks to state finances, as noted by the RBI.

Key Concepts Involved:

• Unconditional Cash Transfers: Direct financial aid provided to individuals or households without specific conditions on how the money is spent.
• Crowding Out: A phenomenon where increased government spending or public sector borrowing reduces private investment or consumption.
• Gross State Domestic Product (GSDP): The total value of goods and services produced within a state's geographical boundaries in a specific period.