Rising welfare costs push states to trim budgets, rethink policies

Rising costs, especially due to women's welfare schemes are straining state finances, forcing governments to cut spending, reassess policies, and even drop some existing schemes

Mounting debt and growing pressure to deliver on welfare schemes, especially monthly allowances for women, have forced several state governments to cut costs. Some are even considering scrapping existing welfare schemes to sustain the more essential ones, such as those announced for women beneficiaries. 

In Maharashtra, the Mahayuti government has decided to cut spending by 5 – 30 per cent across departments. It has instructed departments to reduce expenses on government vehicle purchases, fuel, and publicity by 30 per cent. Expenditure on overtime allowance, telephone and water bills, rent, and taxes is being cut by 20 per cent, as is foreign travel by ministers and officials. The Mahayuti coalition returned to power with a massive win on the back of its promise to increase the allowance under the Majhi Ladki Bahin Scheme. 

Himachal Pradesh, a revenue surplus state until 2021, is now in deficit, with social welfare spending rising sharply in recent years. On January 1, Chief Minister Sukhvinder Singh Sukhu relinquished the subsidy on all five power connections registered in his name. He urged well-off residents, particularly those with multiple electricity connections, to follow his lead. Currently, they receive a subsidy of 125 free units per meter. 

Himachal’s debt-to-GDP ratio is an estimated 42.5 per cent. In 2024, the state government delayed salary payments to employees. Some of its welfare schemes have added pressure on resources. A year ago, the Himachal government rolled out the Indira Gandhi Pyari Sukh Samman Nidhi Yojana, which provides a monthly allowance of Rs 1,500 to eligible women above 18. 

In Karnataka, at the start of the year, the government approved a 15 per cent fare hike for state road transport corporation buses. Since the Congress government implemented the Shakti Yojana in May 2023, making bus travel free for women, the fare hike will primarily impact male passengers. Organisations working for the disabled have also complained about drastic cuts in disability welfare funds. The Siddaramaiah government, however, has said it is committed to continuing the ‘Gruha Lakshmi’ scheme, which provides eligible women with a Rs 2,000 monthly allowance. 

The BJP’s Madhya Pradesh government faces a similar challenge. While courting global investors, it has also focused on reducing “non-essential expenditure,” particularly in the power sector. Over the past year, the state government has assessed each department's losses, including a Rs 25,000 crore power subsidy. Cost-cutting measures aim to sustain the Ladli Behna Yojana, which, in the past year, has distributed Rs 19,000 crore to 12.9 million women beneficiaries. 

According to SBI Research, direct cash transfers to women in eight states cost Rs 2.11 trillion. The study covered Maharashtra, Delhi, Odisha, Chhattisgarh, Madhya Pradesh, Karnataka, Gujarat, and West Bengal. However, it did not factor in similar schemes in Assam, Andhra Pradesh, Telangana, Tamil Nadu, Himachal Pradesh, and Jharkhand, meaning the actual cost is likely to be nearly double. 

In Karnataka, the Rs 28,608 crore annual allocation for the scheme is as high as 11 per cent of the state's revenue receipts. It is 7 per cent for Madhya Pradesh and will rise significantly for Maharashtra, where the Devendra Fadnavis government is fulfilling its poll promise of increasing the Majhi Ladki Bahin Yojana allowance from Rs 1,500 to Rs 2,100. However, the state government may discontinue other welfare schemes and is already removing ineligible beneficiaries from the list.