India's states face fiscal crisis as pre-election cash handouts skyrocket
Cash handouts to voters have surged across India, with nearly every state now offering some form of direct payment. These transfers, often rolled out before elections, have raised concerns about long-term financial stability. A recent economic survey highlights the growing strain on state budgets as spending on such schemes climbs sharply.
Between FY23 and FY26, the number of states providing unconditional cash transfers (UCTs) increased more than fivefold. Nearly half of these states now face revenue deficits, putting further pressure on already stretched finances. While the exact names of the five states with the steepest rises remain unclear, data shows their allocations to UCTs—particularly for women—have soared over 500% in the same period.
The total spending on UCTs for women alone is projected to reach Rs 1.7 trillion in FY26. This surge has pushed cash transfers to as much as 8.26% of some states' total budgets. Critics warn that such high allocations risk diverting funds from essential infrastructure and social services.
Fiscal indicators have already worsened. The combined gross fiscal deficit of states rose from 2.6% to 3.2% of GSDP between FY22 and FY25. Revenue deficits also widened, climbing from 0.4% to 0.7% in the same period. Outstanding liabilities now stand at around 28.1% of GDP, while committed expenditures consumed about 62% of states' revenue in FY24.
The trend marks a shift even for the central government. Previously opposed to cash transfers, the PM Modi-led administration recently pledged Rs 10,000 per household in Bihar ahead of elections. Such moves, while politically popular, deepen concerns over fiscal sustainability and economic growth.
The rapid expansion of cash transfers has left many states grappling with higher deficits and mounting debt. With committed spending already absorbing over 60% of revenue, the long-term viability of these schemes remains uncertain. Economists stress the need for a balance between short-term electoral gains and sustainable financial planning.
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