Unconditional cash transfers a risk to states’ borrowing

States in India face mounting pressure to rein in fiscal populism as revenue deficits go up and unconditional cash transfers (UCT) threaten to crowd out critical capital investment, the Economic Survey has warned, spotlighting risks to the nation’s sovereign borrowing costs and long-term growth.

- HIMANSHI BHARDWAJ

States in India face mounting pressure to rein in fiscal populism as revenue deficits go up and unconditional cash transfers (UCT) threaten to crowd out critical capital investment, the Economic Survey has warned, spotlighting risks to the nation’s sovereign borrowing costs and long-term growth.

The document called for reprioritisation within state Budgets.

“Preserving fiscal space for capital formation and human-capital investment yields stronger and more persistent gains in household incomes, labour productivity, and welfare than a steady expansion of open-ended UCTS,” it said.

The Survey has cautioned that the longterm costs of the “insidious impact” of unconditional fiscal transfers on incentives for self-improvement, upskilling, and employability could be significant, but suggested that better targeting, periodic reviews, and outcome-oriented designs could help mitigate fiscal rigidities.