Cash Transfer Schemes Burden States: Economic Survey Sounds Alarm on Fiscal Health

• Economic Survey 2026 warns against states' populist cash transfer schemes, noting a five-fold increase in implementing states over three years.
• These schemes consume up to 8.26% of some states' total budget expenditure, diverting funds from productive activities like infrastructure.
• States' combined fiscal deficit rose from 2.6% in FY 2022 to 3.2% in FY 2025, with outstanding debt reaching 28.1% of GDP due to borrowing for these schemes.
• Unconditional Cash Transfer (UCT) schemes reduce resources for social and physical infrastructure, risking a debt spiral and hindering economic growth.
• The survey highlights potential negative impacts on Female Labor Force Participation if schemes are not linked to employment and skill development.

Why It Matters: Cash transfer schemes are straining state finances, increasing debt, and threatening long-term economic stability.