Context
Unconditional cash transfers have become an important feature of welfare policy in several Indian States. Their rapid expansion has renewed debate over fiscal sustainability, policy effectiveness and the evidence supporting recurring transfers.
Why Cash Transfers Matter
- India’s large informal workforce often faces irregular earnings, making predictable income support valuable for vulnerable households.
- The transfers to women account for 11–24% of the monthly income of women daily-wage workers and 11–87% of the income of self-employed women.
- Such transfers can provide meaningful support to household incomes, particularly where access to stable employment and social protection is limited.
The Speenhamland Lesson
The Speenhamland system in England (1795) offers an early example of publicly funded income support.
- Local authorities supplemented agricultural wages from parish funds, with assistance linked to bread prices and family size.
- The system blurred the boundary between poor relief and wage support.
- Critics argued that wage subsidies could weaken incentives and distort market signals.
Welfare interventions should be evaluated for their actual outcomes, incentives and wider economic effects.
Growing Fiscal Footprint
Women-focused cash transfers have expanded sharply across States.
- The number of states providing unconditional cash transfers to women increased from 2 in 2022-23 to 12 in 2025-26.
- The estimated annual expenditure reached ₹1.68 lakh crore, around 0.5% of GDP.
- West Bengal: Annapurna Yojana provides ₹3,000 per month to eligible women, with a budget provision of ₹36,000 crore.
- Tamil Nadu: ₹14,412 crore was allocated to Kalaignar Magalir Urimai Thogai in the 2026-27 interim budget.
- Assam: ₹5,000 crore was allocated to Orunodoi.
Cash Transfers Cannot Replace Public Goods
Cash assistance can ease immediate financial stress, but long-term welfare also depends on effective public services and economic opportunities.
Important complements include:
- Healthcare and nutrition
- Childcare and education
- Basic infrastructure
- Employment and livelihood opportunities
Therefore, transfers should complement public provisioning rather than substitute for investments that strengthen human capabilities and earning capacity.
The Evidence Gap
The key concern is the lack of robust evidence linking cash-transfer expenditure with measurable welfare outcomes. This requires clear assessment of:
- Beneficiary targeting and coverage
- Evidence-based eligibility criteria and transfer amounts
- Clearly defined and measurable outcomes
- Fiscal implications and opportunity costs
An Asian Development Bank (ADB) study prepared for the Sixteenth Finance Commission highlighted the lack of a systematic dataset on government expenditure on cash-transfer schemes.
Building an Evidence-Based Framework
Before Rollout
A Welfare Impact Statement should specify:
- Objective and eligibility criteria
- Expected beneficiary coverage
- Five-year fiscal cost
- Alternatives considered
- Likely leakage and exclusion errors
- Measurable outcome indicators
After Rollout
Periodic household surveys should assess changes in:
- Consumption and debt
- Health and education expenditure
- Employment and work patterns
- Women’s control over household expenditure
- Subjective well-being
Governments should also release anonymised microdata to enable independent evaluation.
Challenges and Way Forward
| Challenge | Way Forward |
| Rising recurring expenditure may reduce fiscal space. | Assess schemes against medium-term fiscal sustainability. |
| Limited outcome evidence makes effectiveness difficult to establish. | Set measurable indicators and conduct regular impact evaluations. |
| Data gaps hinder comparison across schemes and States. | Develop a systematic database on transfers and subsidies. |
| Transfers may reduce policy attention to essential public services. | Protect expenditure on health, education, childcare and infrastructure. |
| Leakage and exclusion errors can weaken delivery. | Periodically review eligibility, beneficiary lists and delivery systems. |
| Political incentives may discourage reassessment of existing schemes. | Strengthen transparent reporting, independent evaluation and legislative scrutiny. |
Conclusion
Cash transfers can provide meaningful support to households facing income insecurity. Their expansion should therefore be accompanied by clear objectives, measurable outcomes and regular fiscal and impact assessment. An evidence-based approach can improve the effectiveness, transparency and accountability of welfare spending.
FAQs
- What is an unconditional cash transfer?
It is a direct payment to eligible beneficiaries without requiring a specific action or condition in return. - What is an exclusion error?
It occurs when a person who is eligible for a welfare programme is left out of the beneficiary pool. - What is a Welfare Impact Statement?
It is a pre-implementation assessment covering a scheme’s objectives, coverage, fiscal cost, risks and expected outcomes. - What is opportunity cost in welfare spending?
It refers to the alternative uses of public funds forgone when resources are committed to a particular programme. - Why is anonymised microdata useful?
It enables independent researchers to assess programme outcomes while protecting beneficiaries’ personal information. - What did the Speenhamland experience illustrate?
It showed that income-support systems can have unintended effects on incentives and market behaviour, highlighting the importance of policy design. - Why should cash-transfer schemes be periodically evaluated?
Regular evaluation helps determine whether a scheme remains effective, fiscally sustainable and appropriately designed.
