WHEN THE Aam Aadmi Party (AAP), which leads Delhi’s government, unveiled a new programme handing out 1,000 rupees ($11.50) a month to most women in the capital, the response from political rivals was predictable. The opposition Bharatiya Janata Party (BJP), which runs the national government, staged a protest and called the scheme a “deceitful act”, a ruse to win local elections in February. Even more predictable, though, was the BJP’s unveiling on January 17th of its own scheme, one that outgunned the AAP’s with a promised handout of 2,500 rupees.
Across the political spectrum, India’s parties are embracing cash transfers as a political and policy tool. Alongside Delhi, some 11 states now implement cash-transfer programmes for women (see chart), and more are expected to do so later this year. All told, these schemes reach around 134m women, or a fifth of India’s adult female population, according to research by Axis Bank. The total splurge amounts to 2trn rupees, equivalent to 0.6% of India’s GDP. In some states, transfers exceed 5% of total government expenditure.
Cash transfers are not limited to women. Farmers are another favoured group. Telangana, a southern state, began doling out stipends to farmers in 2018, worth 4,000 rupees an acre per season. Odisha in the east soon followed. Eventually, so did the national government. Nor are freebies limited to humans. In the western state of Maharashtra, cows in public shelters are eligible for a 50-rupee-a-day subsidy.
Although handouts seek to improve the lot of women and farmers (and cows), expediency is foremost in politicians’ minds. Schemes tend to be announced on the eve of elections. Last year in Maharashtra, state elections were reportedly postponed so that money from a cash-transfer programme could reach women’s bank accounts before they cast their votes.
If votes are the measure, recent elections suggest that largesse is rewarded. In the Maharashtra state elections women who got cash transfers were likelier to vote for the winning BJP-led alliance, according to Lokniti-CSDS, a research outfit; beneficiaries were also likelier to show up to polling booths to vote.
Such programmes are an especially potent political tool because ruling parties can now connect directly with voters in a way they could not before. That is thanks to Aadhaar, the government’s universal biometric system that has created digital identities for 1.4bn Indians. A proliferation of bank accounts linked to Aadhaar has allowed officials to transfer benefits directly to people across the country. In 2019 some 507 federal schemes operated in this way; by 2024, that had more than doubled, to 1,206. Crucially, these transfers also make it easier for political leaders to claim credit for their munificence because, unlike other programmes, their implementation does not require middlemen. The BJP has pioneered this type of delivery and marketing. Over the past decade, dozens of the government’s schemes have had the name of the prime minister, Narendra Modi, affixed to them. The strategy has tended to yield political returns.
To beat Mr Modi and the BJP other parties reckon they need to emulate them. Research by Neelanjan Sircar and Yamini Aiyar, two political scientists, suggests that regional parties that have implemented cash-transfer policies and linked them to their own leaders have eaten into the BJP’s support in their states. India is in an era of “competitive welfarism”, the authors say, in which parties vie to woo voters with ever more generous policies.
But does the new welfare model actually improve lives? Giveaways certainly boost consumption. Examining recent cash transfers to women, Axis Bank found that spending in poorer households can jump by between 7% and 45% in a month. Such handouts can also have other benefits. “Cash transfers bring women dignity and confidence, and help us spend money according to our needs,” says Bushra, a homemaker and recipient of the AAP’s cash transfer in Delhi. Her perspective is borne out in research. A study carried out in central India in 2013 found that transferring money directly to women’s bank accounts gave them greater financial autonomy and even empowerment (by giving women more standing in the family or community, for instance).
In other areas of development, however, the evidence from India is less compelling. In education and health, unconditional cash transfers do not seem to improve how well children do at school or reduce malnutrition. By contrast, transfers linked to meeting certain conditions, such as attending school or completing an immunisation programme, have in some instances proven to be more effective.
In addition, some economists say, cash transfers might actually hurt development by eating into the budgets for other important programmes. At the national level, spending on education and health over the past five years has stagnated and remains below that in Brazil or South Africa as a percentage of GDP. In states that have implemented cash transfers for women, other spending has been compromised. In Maharashtra, for example, the 5% of the state budget allocated to the programme is more than the funds set aside for health (4.6%), rural development (3.9%) or energy (2.3%). In December the central bank raised concerns over states’ deteriorating fiscal positions, which were exacerbated by rising subsidies and cash transfers.
The biggest concern with freebies is what they mean for the role of the Indian state. Cash has emerged as a “one-size-fits-all” solution, says Himanshu, a professor at Jawaharlal Nehru University in Delhi. Yet handouts do little to improve the quality of schools or health-care facilities. Nor do they generate jobs, perhaps India’s greatest task. Fixing these issues calls for careful policy design and implementation, which Dr Himanshu says Indian policymakers run away from.
For now, they are only running faster, and against each other. For instance, grand schemes appear to be in the works ahead of an election later this year in Bihar, India’s poorest state. One day, India’s voters, taxpayers especially, may demand better from their politicians. Just 2% of Indians, mainly members of the urban middle class, pay income tax. They are becoming noticeably frustrated about bearing the burden of the state’s generosity. Handouts might also lose their allure among beneficiaries. “I would rather see the government invest in health, education and better infrastructure,” says Anamika Das, a domestic worker in Delhi. Jobs, she says, are “far more important than handouts”. ■
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