Context:
The Economic Survey 2025-26 has raised concerns regarding the rapid expansion of Unconditional Cash Transfers (UCTs) by States and their long-term fiscal sustainability.
Key Highlights:
- Scale of Expansion
- Estimated spending: ₹1.7 lakh crore (2025-26).
- States implementing UCTs increased five-fold (2022-23 to 2025-26).
- Fiscal Magnitude
- UCTs account for:
- 0.19–1.25% of State GDP.
- 0.68–8.26% of total State budgets.
- Changing Fiscal Composition
- Rising share of revenue expenditure.
- Reduced fiscal space for capital expenditure.
- Survey’s Assessment
- Previous Survey: Highlighted consumption benefits for poor households.
- Current Survey: Flags:
- Medium-term fiscal risks.
- Crowding out of infrastructure spending.
- Absence of sunset clauses.
Relevant Prelims Points:
- Unconditional Cash Transfers (UCTs): Direct payments without conditions.
- Difference between:
- Conditional vs Unconditional transfers.
- Revenue vs Capital expenditure.
- Fiscal sustainability indicators.
- Role of the Economic Survey (tabled before Union Budget).
Relevant Mains Points:
- Welfare vs Growth Trade-off
- UCTs:
- Boost short-term consumption.
- Provide gender empowerment (many targeted at women).
- However:
- Reduce long-term growth potential if capital spending declines.
- Fiscal Sustainability
- Persistent revenue commitments create structural rigidity.
- Risk of higher debt and fiscal stress.
- Political Economy Dimension
- Competitive populism among States.
- Weak institutional checks on scheme evaluation.
- Equity Considerations
- Can reduce poverty and vulnerability.
- Important during economic distress.
Way Forward:
- Introduce sunset clauses and periodic review mechanisms.
- Target transfers better using DBT architecture.
- Maintain balance between welfare spending and capital investment.
- Strengthen State fiscal responsibility frameworks.
UPSC Relevance:
- GS 3: Fiscal policy, public finance, growth vs welfare debate.
- GS 2: Governance and welfare schemes.
- Prelims: Economic Survey, fiscal concepts, DBT architecture.