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By Pankhuri Shah and Muzamil Baig
One common reaction to State welfare has been to paint it as part of a “freebie culture” that squanders public funds for causes and people that do not benefit or do not deserve the benefit. Among the many schemes that get categorised as welfare, unconditional cash transfers (UCTs) are particularly pilloried – derided as “free money” from which no good can result but beneficiaries who, it is alleged, become dependent, lazy and entitled over time.
Data show cash transfers can provide an efficient replacement to traditional forms of welfare like subsidies and in-kind transfers by eliminating market distortions, leakages and inequitable distribution
Yet, annual budgets allocated to UCTs (by the Central and various State governments) have grown 23 times in the last decade, peaking at INR 2,80,000 crore in 2024-25 (see table). Almost 78% of this for 2024-25 is towards schemes for women and farmers to ensure economic empowerment and to provide investment support. The dramatic growth in UCTs in India indicates a mismatch between the view of policymakers in favour of cash transfers and how this policy measure translates to public opinion.
The Economic Survey of India in its 2016-17 document firmly took a stand in favour of UCTs, saying: “Any society where any form of inheritance or accepting nonwork related income is allowed, already detaches income from employment. So, receiving a small unearned income as it were, from the State should be economically and morally less problematic than the panoply of ‘unearned’ income our societies allow.”
UCTs offer a quick, reliable and human centric approach to effectively addressing the issue of last mile access
Yet, mixed signals from political leaders have added to the noise and made it that much more difficult to build a cogent case for UCTs.
Data shows how cash transfers can provide a suitable and efficient replacement to traditional forms of welfare like subsidies and in-kind transfers by eliminating their drawbacks of market distortions, leakages and inequitable distribution. It provides the State an opportunity to streamline welfare by consolidating the multiple, fragmented schemes into more focussed, outcome-oriented policies, leading to a lower administrative burden and more fiscal space.
One notable example is of the petroleum subsidy in India being phased out in favour of Direct Benefit Transfer (DBT) for LPG, leading to the introduction of PAHAL (Pratyaksh Hanstantrit Labh), where money was directly provided in the bank account of LPG users. PAHAL resulted in savings of INR 73,433 crore due to the elimination of duplicate accounts.
Recipients of a lumpsum cash transfer of INR 65,000 (almost equal to their annual income) use more than 80% of the funds to build long term assets to improve security and enhance livelihoods
On the citizens’ end as well, we see that the myths around how capital with no strings attached can spur laziness and negative consumption are misplaced. Studies from experiments around the world and India demonstrate how the rational behaviour theory plays out in real life - recipients of cash transfers make choices that maximise impact in their lives, given their context and available information. A study of programmes run by the non-profit ‘Project Deep’ in tribal villages of Maharashtra and Rajasthan show how recipients of a lumpsum cash transfer of INR 65,000 (almost equal to their annual income) use more than 80% of the funds to build long term assets to improve security and enhance livelihoods.
A study from Kenya in 2023 found that while short term (two years) monthly transfers have a greater impact on food security and diversity, longer term monthly transfers (12 years) encourage savings and investments, while the same amount provided as a lump-sum transfer is most effective in helping households accumulate assets. Additionally, all forms of assistance contributed to improvements in psychological well-being among recipients. A study by Egger et all in 2022, shows that that US $1 transferred results in a $2.5x multiplier in the local economy.
The constant need for KYC requirements, the removal of beneficiaries with no communication and the poor channels of grievance redressal result in high exclusion errors
A recent study paper of January 2024 by Jeffrey Weaver, Sandip Sukhtankar, Paul Niehaus & Karthik Muralidharan (“Maternal Cash Transfers for Gender Equity and Child Development: Experimental Evidence from India”) shows how cash transfers to new mothers improved household food spending, calorie intake, and dietary diversity and quality. There was a meaningful reduction in intra-household gender inequity. This echoes and re-emphasises other rigorous research done over the last decade, that giving cash works.
In India, significant investments have been made in the State infrastructure that enables us as a nation to deliver money directly into the bank account of citizens. However, much is to be done at the last mile to realise the full potential of these transfers. The challenges are two-fold. One is at the level of data adequacy - do we even know who we seek to serve and how to reach them? The constant need for KYC requirements, the removal of beneficiaries with no communication and the poor channels of grievance redressal result in high exclusion errors. A focus on scheme awareness and simplification of enrolment by shifting the burden of proof off the citizen is required to realise the full potential of the benefits.
Cash transfers to new mothers improved household food spending, calorie intake, and dietary diversity and quality
Further, there remains the challenge of financial access. Consider that in December 2023, there were 10.34 crore inoperative PMJDY (Prime Minister Jan Dhan Yojana) accounts, of which 4.93 crore accounts belong to women. The deposited balance in these accounts is around INR 12,779 crore which is around 6.12% of the total deposited balance in PMJDY accounts.
Potential reasons include distance from banks, compounded by limited transportation options, confusion about Aadhar seeded accounts or language and communication barriers. Enabling inclusion leading to financial empowerment requires looking at the stories behind the numbers to understand what really deters quality service delivery and adopting a human centric approach to resolving the last mile challenges.
All indicators point to the simple fact that our imagination of UCTs is deeply flawed and that UCTs offer a quick, reliable and human centric approach to effectively addressing the issue of last mile access.
(Shah and Baig, co-founders of a non-profit focused on UCTs, have studied global UCTs and implemented programs in Maharashtra and Rajasthan to understand the impact of cash transfer first-hand)