Targeted cash transfers carry hidden political costs for Indian states
Unconditional cash transfers aimed at women are expanding, but targeting errors and perceived unfairness are creating political costs for incumbent governments.
Since 2020, Unconditional Cash Transfer (UCT) schemes have emerged as a key electoral strategy in India, particularly aimed at attracting women voters. Programmes such as the Kalaignar Magalir Urimai Thittam in Tamil Nadu, Lakshmir Bhandar in West Bengal, and Gruha Lakshmi Yojana in Karnataka are prominent examples. However, despite increasing cash payouts ahead of the 2026 elections, some incumbent governments implementing these schemes have faced defeat, raising questions about the political costs associated with UCTs.
These schemes are designed to provide direct financial support to women and partially advance Sustainable Development Goal 5.4, which calls for recognising women's unpaid domestic and care work. According to the Ministry of Finance's latest Economic Survey, states are expected to spend about $18 billion on UCTs in 2025-26, with much of it targeted towards women.
Critics argue that such schemes function as electoral "freebies." Their financing often requires expenditure switching or larger fiscal deficits, reducing resources available for productive investments, including employment generation and self-employment programmes. Once households become dependent on UCTs, withdrawing them becomes difficult as political parties engage in competitive welfarism.
A fundamental challenge in targeted UCT programmes is beneficiary identification. Since governments cannot directly observe incomes for most informal sector workers, they rely on proxy indicators such as land ownership, electricity consumption, or household assets. This inevitably produces both inclusion errors (benefits reaching ineligible households) and exclusion errors (eligible households being left out). These targeting errors, whether real or perceived, can impose significant political costs.
The Kalaignar Magalir Urimai Thittam scheme illustrates this challenge. Although the ruling party promised ₹1,000 per month to all women-headed households before the 2021 election, fiscal constraints led the government to restrict eligibility based on income, land ownership, and other criteria when the scheme was launched in September 2023. Initially, about 1.13 crore women were covered. Following widespread complaints from women who believed they met the eligibility criteria, another 16.94 lakh beneficiaries were added in December 2025. The scheme cost ₹13,807 crore in 2025-26.
Despite the expansion, dissatisfaction persisted. Many women who considered themselves unfairly excluded reportedly became even more aggrieved when eligible beneficiaries received an advance payment of three months' entitlement along with a special summer relief payment. Although the precise electoral impact cannot be measured, even modest shifts in voter preferences can influence outcomes in closely contested constituencies.
Similarly, the Lakshmir Bhandar scheme, introduced in 2021 to provide monthly assistance to women, faced allegations of including non-residential citizens. Although benefits were increased before the 2026 election, the incumbent government lost power. Maharashtra's Mukhya Majhi Ladki Bahin Yojana and Karnataka's Gruha Lakshmi Scheme also faced inclusion and exclusion errors respectively.
These experiences highlight an important feature of targeted welfare programmes. Political costs arise not only from actual errors but also from perceived ones. Individuals who fail to satisfy official eligibility criteria may nevertheless believe they have been treated unfairly. Likewise, households that legally qualify may be perceived as undeserving because they appear relatively affluent. Such perceived targeting errors can be as politically consequential as actual administrative mistakes.
This reveals an inherent tension between economics and politics. Economics favours targeted programmes so that scarce public resources reach those most in need. Politics, however, rewards broader inclusion because voters evaluate governments not only by the benefits they receive but also by those they believe were unfairly denied. Consequently, targeted UCT programmes carry an unavoidable political cost.
Conditional cash transfers and other incentive-based welfare programmes offer a more sustainable alternative. Linking benefits to socially desirable outcomes produces broader developmental gains. Tamil Nadu's Midday Meal Scheme illustrates this principle. Since participation depends on school enrolment, self-selection reduces grievances.
The broader lesson is that welfare programmes tied to education or other desirable behaviours can achieve developmental objectives with lower political costs. In contrast, UCTs remain inherently vulnerable to inclusion, exclusion, and perceived targeting errors. These political costs should be recognised alongside their economic and social benefits when designing future welfare policies.