Rising women-focused cash schemes pose tough fiscal, political calls

Bihar's last-minute scheme reflects a broader shift toward unconditional transfers, even as many states run revenue deficits and debt levels climb

The Mukhyamantri Mahila Rojgar Yojana was widely seen as a key factor behind the National Democratic Alliance’s (NDA’s) thumping victory in Bihar this month. Under the scheme, eligible women were given ₹10,000 to start a business, with the possibility of another ₹200,000 worth of assistance. Chief Minister Nitish Kumar deserves credit for taking several steps to empower women over the years, and it would be unfair to conclude that a single scheme, announced at the last minute, tilted the balance in NDA’s favour. In fact, according to one analysis, three of the five Assembly seats with the highest women voter turnout were won by the All India Majlis-e-Ittehadul Muslimeen, which was not part of either of the two major competing alliances. There is often a combination of factors that determines election outcomes, and it is difficult to gauge the extent to which each one influences voter choice, particularly in a large state like Bihar.

 

Nevertheless, the idea of cash transfers to women is gaining wider acceptance, and the last-minute scheme in Bihar reflected this trend. According to a recent report by PRS Legislative Research, the number of states providing largely unconditional cash transfers to women has gone up from two in 2022-23 to 12 in 2025-26. It estimates that states have allocated about ₹1.68 trillion, or 0.5 per cent of gross domestic product (GDP), in the current financial year for such schemes. Some states have substantially increased allocation this year. Notably, out of the 12 states, six are expected to run a revenue deficit in the ongoing year. Differently put, states that are unable to raise enough revenue to meet their recurring expenditure are also distributing cash unconditionally. In fact, one state has moved from being revenue-surplus to revenue-deficit. Given the broader context, it is only a matter of time before similar schemes are introduced in other states as well. This raises some economic and political questions.

 

Let’s first look at the economic aspect. At the aggregate level, state government debt stock is worth over 27 per cent of GDP, which is on the higher side. The Fiscal Responsibility and Budget Management Review Committee (2017) had recommended a debt ceiling of 20 per cent of GDP for states. Besides, some states are borrowing to meet their revenue expenditure. Given the overall fiscal position, it can be argued that states should refrain from such schemes. However, this may not be practically possible now. Cash transfer schemes are popular among both the political class and the electorate. Considering the increasing appeal of this instrument, the debate perhaps needs to be framed differently. Is cash transfer the best way to empower women in India? Do their lives change meaningfully after getting enrolled in such a scheme? Answers to such questions can determine if cash transfer schemes can be leveraged to attain wider socio-economic objectives. 

A recent National Bureau of Economic Research paper, “Maternal Cash Transfers for Gender Equity and Child Development: Experimental Evidence from India”, studied the impact of cash transfer to new mothers through a large-scale randomised evaluation. It found that treated households witnessed 9.6-15.5 per cent increase in calorie intake for mothers and children. Gains were also noticed in terms of the diversity of diet. Further, gender disparity in food consumption declined. India needs many such studies. Intuitively, additional cash flow to poor households is most likely to improve the quality of life. Once there is ample evidence, some of the subsidies can also be converted into cash transfers, enabling larger consolidated amounts to be transferred to women in eligible households. At some stage, the central and state transfers can also be consolidated. There are various possibilities. 

However, it will be important that fiscal discipline is not compromised. Given the developmental needs and the fiscal position of states, part of the budget that can be spent on subsidies and cash transfers can be determined. Ways will need to be devised to implement strict fiscal rules. States should not be borrowing additionally to finance cash transfers, irrespective of the merits, because such a path is simply unsustainable. As things stand, 19 states are carrying debt above 30 per cent of their GDP, while Punjab and Himachal Pradesh have outstanding liabilities above 40 per cent. A special dispensation might be needed for these states. There are also states where the growth in interest payments is higher than the growth in revenue collection. 

Now, the political aspect. It has been noted that state governments often announce such schemes on the eve of elections and ensure that the transfers begin before polling. Clearly, the idea is to influence voters. Whether the scheme makes a difference is a different matter. But even if it makes only a minor difference, it can disrupt the level playing field in tight contests. Addressing this will be tricky because the government of the day is free to announce and implement any scheme till the model code of conduct comes into force. Thus, overall, addressing the economic aspects of cash transfer schemes for women or other target groups would be much easier than dealing with the political facet.