The Economic Survey 2025-26, tabled ahead of the Union Budget, raises fresh concerns about the rapid expansion of unconditional cash transfers (UCTs) and state-level “freebies” — particularly those targeting women — which now absorb a significant slice of state budgets and risk crowding out investment in infrastructure and human capital. While these schemes offer immediate income relief and help consumption, the Survey warns their fiscal footprint has grown sharply, with aggregate spending on UCTs in FY26 estimated around ₹1.7 lakh crore and implementation rising more than fivefold since FY23.

Officials note that high reliance on such transfers can deepen revenue deficits, squeeze capital expenditure on sectors like health and education, and tighten fiscal flexibility for states, even as half of the states running these programmes now face revenue shortfalls. Unconditional schemes also risk reducing female labour participation and lack built-in “sunset clauses” or periodic reviews that could prevent long-term fiscal rigidity.

To address these issues, the Survey suggests a shift toward conditional, time-bound welfare models linked to measurable outcomes — drawing on international examples like Brazil’s Bolsa Familia, Mexico’s Progresa/Oportunidades, and the Philippines’ Pantawid Pamilyang Pilipino Program — where cash support is tied to school attendance, health check-ups or other developmental criteria. Such design features are intended to preserve fiscal space while investing in human capital growth, rather than perpetuating open-ended transfers.

In essence, policymakers are urged to balance short-term welfare with sustainable, growth-focused spending to support both inclusion and long-term economic resilience.