Improving cash transfers: Time to construct a firm policy framework for DBT

An EAC-PM study finds women's cash-transfer schemes improve savings and spending, but raises questions over their long-term fiscal sustainability

A new study published by the Economic Advisory Council to the Prime Minister (EAC-PM) shows how cash-transfer schemes for women are working. The study focuses on Maharashtra and Odisha. Under the Mukhyamantri Majhi Ladki Bahin Yojana, the Maharashtra government transfers ₹1,500 per month to eligible women. The Odisha government, under the Subhadra Yojana, transfers ₹10,000 per year in biannual instalments. Given that such schemes have become popular, both politically and among constituents, all efforts to study their outcomes should be welcomed. The study finds that the month-end balance of beneficiaries in Maharashtra increased by about 84 per cent, while spending increased by about 46 per cent. Meanwhile, the Odisha programme led to a balance increase of about 45 per cent, while spending went up about 28 per cent. The study has highlighted various other aspects, such as the composition of spending and other positive spillovers.

 

Although the study is likely to attract interest from various stakeholders, the headline findings are not surprising directionally. Along with evidence from other parts of the world, it is expected that regular and predictable cash transfers will make beneficiaries better off. However, other dimensions of cash-transfer schemes also need adequate attention. What will be the future of such schemes, and can cash transfers be scaled up to achieve other public policy objectives? As the study notes, at the end of 2025-26, over 15 states had introduced some form of unconditional cash transfer for women. More states will likely follow this model. Estimated expenditure on such schemes is around ₹1.7 trillion, with about 120 million women benefiting. However, it is worth noting that these schemes are mostly additional expenditure for states, which may prove costly to finance over time. A study by PRS Legislative Research last year showed that half the states with such a scheme in 2025-26 were expected to run a revenue deficit. In other words, they are borrowing from the market to fund these transfers, which may become difficult to sustain. Besides, there are other cash transfer schemes.

 

As the Sixteenth Finance Commission (SFC) noted, large-group cash transfers increased from 3 per cent of revenue subsidies in 2018-19 to over 20 per cent in 2025-26 (Budget estimate or BE). The total subsidies in 21 states included in an SFC analysis increased from 2.2 per cent of their combined gross state domestic product in 2018-19 to 2.7 per cent in 2025-26 (BE). Since cash-transfer schemes are usually announced around elections, there is nothing to stop incumbents from substantially increasing the amount. In terms of political outcomes, such schemes also potentially tilt the balance in favour of incumbents.

 

So what can be done? The trend in cash transfers is unlikely to be reversed. More studies are likely to show the benefits of such schemes. However, policymakers should not lose sight of fiscal implications and broader socioeconomic objectives. Since the Union government also makes cash transfers, consolidating such transfers to households to improve efficiency, with a possible upper limit based on an informed assessment, would make sense. Other subsidies such as those on food and fertilisers may also be included. Economists have long argued that cash transfers are a vastly more efficient way of supporting households. Furthermore, hard fiscal rules need to be implemented to ensure that subsidies are not financed by cutting productive expenditure. This will require a political consensus and resolve.