Cash transfers must not lead states to fiscal ruin

A political imperative amid hard times for multitudes could turn into a race to the bottom. If cash handouts are inevitable, such schemes need to be studied in depth and designed well

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The Reserve Bank of India (RBI) is known for self-restraint and detachment in what it publishes. It is thus surprising to find that its annual publication, State Finances: A Study of Budgets, unequivocally criticises state governments for their unchecked rise in expenditure on subsidies and cash transfers (primarily to farmers, women and youth). The central bank's report was constrained to note: "States need to contain and rationalise their subsidy outgoes, so that such spending does not crowd out more productive expenditure." The RBI report comes on the heels of another annual study from non-profit PRS Legislative Research, State of State Finances, which observed that nine states had provided a cumulative outlay of about ₹1 trillion in their budgets for 2024-25 for unconditional cash transfers to women; however, the final spending at year-end under this head is expected to shoot past ₹1.5 trillion, with many additional states, especially poll-bound ones, promising similar schemes outside their budget. Notably, these cash transfers are agn