Welfare vs Growth: Economic Survey’s Freebie Warning
Finance Minister Nirmala Sitharaman presented her ninth consecutive Union Budget on Sunday. But ahead of it, came the Economic Survey that has flagged a key concern on fiscal prudence that will need the attention of state governments too.
The Survey noted that unconditional cash transfers (UCTs), which are government payments made without conditions, have become a widespread tool in welfare policy across many Indian states. Such transfers and freebies are intended to give immediate support to vulnerable groups, especially women and low-income households.
However, the document raises concerns about their long-term fiscal impact. It warns that the rapid expansion and persistent reliance on freebies could strain state budgets and divert resources away from growth-enhancing public investments, such as infrastructure, education, and health. If governments continue to scale up such handouts without careful design, it may weaken incentives for productive employment and economic participation.
Freebies and UCTs are seen as politically popular because they provide instant relief and support. Think the Ladli Behen Yojana of Madhya Pradesh or Maharashtra’s version of it called the Majhi Ladki Bahin Yojana or the Rs 10,000 dole to women just ahead of the Bihar elections. Anecdotal evidence from the election landscape suggested that getting access to cash in their accounts played a role in women feeling empowered.
But the Survey questions whether this popularity comes at the cost of sustainable development. It suggests that while short-term income support can be valuable, especially during economic stress, it should be reassessed and redesigned so that it is more targeted, fiscally responsible, and aligned with long-term growth goals.
Fiscal sustainability: Large, open-ended handout programs can limit a government’s ability to invest in infrastructure and services that raise long-term productivity.
Growth vs. welfare balance: Policymakers face a challenge in balancing social protection with investments that drive economic growth. Well-designed welfare can complement growth, but poorly structured freebies may impede it.
Incentives and participation: The Survey flags the risk that overly broad or unconditional benefits might unintentionally reduce incentives for work and skill development if not aligned with broader economic objectives.
Read our detailed story on how many states have leaned on freebies focused on women to score political points.