Economic Survey calls out ‘revdi’ culture – warns election freebies could bankrupt states

Unconditional cash transfers, often called election freebies, have quickly become a major part of welfare policy in many Indian states. These schemes provide quick income support, especially to women, but they also raise serious questions about government finances and long-term economic growth. The Economic Survey 2025–26 recognises that cash transfers help in the short run, but cautions that if they become too large, long-lasting, or poorly designed, they could strain state finances and reduce spending on projects that support growth.

The Survey estimates that spending on cash transfer schemes will be around Rs 1.7 lakh crore in FY26. Against the backdrop of tight state budgets and rising debt, it argues that such schemes need careful planning so they do not harm growth over time.

Major state schemes and their massive billions

Indian states are spending large amounts of money on direct cash support schemes, mainly aimed at women and families.

Under the Mahayuti government, led by the BJP and Shiv Sena, Maharashtra has allocated Rs 36,000 crore for the Mukhyamantri Majhi Ladki Bahin Yojana, a scheme that provides financial assistance to women beneficiaries across the state.

In Karnataka, the Congress government led by Chief Minister Siddaramaiah has allocated Rs 28,608 crore for the Gruha Lakshmi Scheme. Under the programme, eligible women are given Rs 2,000 every month to help manage day-to-day household expenses.

In Madhya Pradesh, the BJP government has set aside Rs 20,450 crore for the Ladli Behna Yojana. The monthly assistance under the scheme has been raised to Rs 1,500, which has pushed up the total cost of the programme.

Under the Chief Minister Revanth Reddy led Congress, Telangana has the highest allocation among these states, with Rs 56,084 crore dedicated to its Six Guarantees programme. This includes major schemes like Mahalakshmi and Rythu Bharosa, which provide financial support to women and farmers.

Sharp increase in State-level schemes

According to the Survey, the number of states running unconditional cash transfer programmes increased more than five times between FY23 and FY26. This expansion has happened even though about half of these states are running revenue deficits. Studies cited in the Survey show that these schemes cost states anywhere between 0.19 per cent and 1.25 per cent of their GSDP, and in some cases make up over 8 per cent of total state spending.

For those who receive them, the impact is significant. Cash transfers account for 11 to 24 per cent of monthly income for female casual workers and in some states, as much as 87 per cent for self-employed women. In rural areas, these payments reportedly make up 40-50 per cent of monthly consumption spending for at least half the population.

However, the Survey also points to the pressure on state finances. The combined fiscal deficit of states rose from 2.6 per cent of GDP in FY22 to 3.2 per cent in FY25, while total state debt stands at around 28.1 per cent of GDP. 

Fixed expenses such as salaries, pensions, interest payments and subsidies already take up nearly 62 per cent of states’ revenue, leaving very little room for extra spending.

How social media reacts

Reacting to the economic survey data on election freebies an X (formerly Twitter) user said, “An economy driven by freebies isn’t growth but illusion”.

Another user wrote, “Freebies may result in budget deficits, borrowing, or printing more money, which can contribute to inflationary pressures. Increased taxes can have an impact on individuals and businesses, savings, investment and consumption patterns”.

A third user wrote, “This does not make sense. Political parties eventually are not paying anything from their own pockets. Unless people understand the deficits that some of these governments run. And what causes those deficits and its consequences will keep happening. I feel that will change in the future, with voters getting mature over time but this is sadly a key political move till then”.

One more comment surfaced where a user argues that, “Instead of giving free services to the citizens, govt. should create enough opportunities so that the individual is capable of paying these services himself!”.

While accepting that cash transfers offer quick relief and help women meet health and personal needs, the Economic Survey warns of clear trade-offs. If deficits are not allowed to rise further, extra spending on cash transfers will reduce funds available for important social and infrastructure projects. At the same time, increasing deficits further would weaken the overall financial position of states.

The concern goes beyond just finances. Many cash transfer schemes do not have an end date or regular reviews, making government spending inflexible. When money gets tight, capital spending – which has a stronger and longer-lasting impact on growth – is often cut first, hurting medium-term growth. 

The Survey also points to evidence that such schemes may reduce women’s participation in the workforce if they are not combined with jobs and skill-development programmes.