Unconditional Cash Transfers to Women Raise Fiscal Burden on States: PRS Report

Unconditional Cash Transfers to Women Raise Fiscal Burden on States: PRS Legislative Research

A rising wave of unconditional cash transfer (UCT) schemes aimed at empowering women across Indian states is beginning to strain state finances, according to a new report by PRS Legislative Research.

The report highlights a sharp expansion in such welfare programs — from just two states in FY23 to twelve by FY26 — reflecting the growing political and social emphasis on direct financial support for women from low-income households.

These UCT schemes typically provide monthly assistance through Direct Benefit Transfer (DBT) mechanisms to women who meet specific eligibility criteria, including income, age, or socio-economic status.

Spending Surge and Fiscal Implications

According to FY26 budget estimates, states collectively plan to spend ₹1.68 lakh crore — equivalent to 0.5% of India’s GDP — on women-centric UCT programs. This represents one of the fastest-growing categories of state welfare expenditure.

Among the major contributors, Assam and West Bengal stand out for having increased allocations by 31% and 15%, respectively, compared with their revised FY25 spending.

However, the report cautions that this expansion is creating visible fiscal stress, especially in states already operating with limited revenue surpluses or deficits.

Revenue Deficits Emerging Across UCT States

Out of the twelve states implementing these schemes, six have projected revenue deficits for FY26. PRS analysts note that when spending on UCTs is excluded, several of these states would show improved fiscal health — suggesting that welfare payouts are a primary driver of the deficit widening.

For instance, Karnataka, which projected a 0.3% revenue surplus of its Gross State Domestic Product (GSDP), would shift into a deficit position once the fiscal impact of its cash transfer scheme is accounted for.

Similarly, smaller states with lower own-tax revenues are finding it increasingly difficult to balance populist welfare expansion with sustainable fiscal management.

Gradual Expansion Models and Regional Variations

Not all states are adopting the same scale or speed of rollout. Himachal Pradesh, for example, has opted for a phased implementation of its women’s cash transfer program, gradually extending coverage to all eligible beneficiaries. This approach, the report notes, may help in mitigating fiscal volatility by aligning expenditure with available revenue inflows.

Delhi, however, was excluded from the analysis due to the absence of updated GSDP data, making comparative fiscal assessment difficult.

Balancing Welfare Gains with Fiscal Prudence

While unconditional cash transfers have proven to be socially impactful and politically popular, the report warns that long-term fiscal sustainability could be compromised if these programs expand without matching revenue generation or expenditure reprioritization.

Economists point out that UCTs play a crucial role in improving women’s financial inclusion and consumption stability, but sustained expansion across multiple states could eventually crowd out development spending in sectors like infrastructure, health, and education.

“The challenge is not the intent, but the scale,” the report notes. “As states compete to roll out universal cash transfers, fiscal space is tightening, especially in those reliant on central devolution and grants.”

Policy Outlook

As India heads into the second half of the decade, the rapid proliferation of women-focused UCTs underscores the shifting nature of welfare politics — one that prioritizes direct income support over traditional subsidy models.

Experts suggest that the next phase of reform may involve targeted UCT rationalization, improved beneficiary audits, and integration with broader social protection systems to ensure that empowerment does not come at the cost of fiscal fragility.

If left unchecked, the report concludes, India’s states may find themselves at a crossroads — between inclusive welfare ambitions and the need for fiscal discipline in an increasingly competitive political economy.