Explained : Cash transfers and fiscal stress: States’ welfare race meets budget reality and Its Impact

The survey notes that while unconditional cash transfer offers immediate income support, especially to women, they also raise difficult fiscal and economic questions. The survey warns that their scale, persistence, and design could weaken State finances and crowd out growth-enhancing public investment.

The case of Jharkhand

The most recent instance of such a scheme severely straining State government finances is in Jharkhand, where Chief Minister Hemant Soren led an alliance headed by the Jharkhand Mukti Morcha (JMM) to power for a second consecutive term in 2024, riding on the support of women voters who were promised a regular income under the Maiyan Samman Yojana.

The Maiyan Samman Yojana provides a monthly sum of Rs.2,500 to over 56 lakh women in Jharkhand, costing the State approximately Rs.16,800 crore. Increasingly, questions are being raised over the sustainability of the scheme.

The State government, which allocated Rs.13,363 crore for this scheme in FY 2025-26, is putting up a brave face. That it is treading on shaky ground, however, is quite clear from statements by its Finance Minister, Radhakrishna Kishore, in the last few months.

There have been instances of teachers not being paid their salaries in time. Several other government departments are also facing a financial crunch.

Recently there has been controversy over payment delays in the scheme and the exclusion of over 5 lakh beneficiaries. These were later attributed to inadequate paperwork.

On January 31 in Ranchi, BJP MP Nishikant Dubey raised the issue of the State’s financial crisis: “After March, it is uncertain whether Hemant Soren will receive his own salary. Where will this Rs.13,000 crore come from? If this Maiyan scheme is shut down suddenly one day, it will not be a surprise. Nor will there be any progress in the housing scheme. They were already diverting 30 to 40 per cent of MNREGA [Mahatma Gandhi National Rural Employment Generation Act] funds for the housing scheme. Now they will have to give 40 per cent share from their side. The State has no resources, it won’t be able to do anything. The Jharkhand government has no money.”

In a review meeting chaired by the State Development Commissioner in December 2025, it was revealed that payments totalling approximately Rs.11,700 crore was pending for work completed in three key departments—Rural Works, Drinking Water and Sanitation, and Rural Development. It was also pointed out at the meeting that funding constraints had stalled payments for several projects, delaying the construction of new bridges and roads.

In November 2025, Kishore had called for urgent action to improve revenue collection. The Commercial Taxes Department had set a collection target of Rs.26,500 crore. Only 49.41 per cent of it had been realised until October. Kishore also asked officials to increase revenue from “internal sources”.

Notwithstanding the financial pressure, the State government is not in a mood to make any changes in schemes like Maiyan Samman, Sarvajan Pension, and free electricity up to 200 units—these were all key promises made in the run-up to the 2024 Assembly election. Last year, the State government asked for a loan of Rs.1,500 crore from the Reserve Bank of India under the Fiscal Responsibility and Budget Management Act in order to finance development schemes. 

In November and December of 2025, there was intense speculation in the media that Soren might join the National Democratic Alliance (NDA) in an attempt to tide over the State’s dire financial situation. But Congress general secretary K.C. Venugopal, who had a conversation with Soren in the first week of December, expressed confidence that the JMM would remain part of the INDIA coalition. Talk of Soren’s joining the NDA, he said, was rumour-mongering by the “right-wing media”.

Such speculation, however, had been fuelled by reports of Soren and his wife, Kalpana Soren, holding talks with BJP leaders. After the election in Bihar, in which the INDIA alliance fared poorly, JMM general secretary Vinod Pandey even told a media outlet that it was time to review the alliance. This, however, was presumably more an expression of pique than anything else—the JMM had not been given a single seat in Bihar by the alliance.

In the weeks when speculation about a possible JMM-BJP alliance was doing the rounds, it was always Jharkhand’s financial troubles that were cited as a motivating factor. It was said that there was a growing impression within the JMM that aligning with the NDA would facilitate a better flow of funds to the State, which is largely dependent on Central assistance, grants, GST compensation, and various Central schemes.

That speculation has since died down. But Jharkhand’s financial crisis remains as real as ever with the State committed to spending huge amounts on social welfare, education, urban development, health, and rural development. Budgetary constraints continue to impact infrastructure work.

The opposition is quick to seize on any sign that the government may be backtracking on social welfare promises. There was a furore in December when the Jharkhand government proposed to increase electricity tariff by 60 per cent. The BJP reminded the electorate that Soren had come to power promising cheap electricity.

On February 8, the All Jharkhand Students Union (AJSU), an NDA ally, alleged that development work in the State was at a standstill with schemes like road construction and piped water supply stalled because of insufficient funds. The mineral-rich State, said AJSU, was now being called a “labour State”.

After the presentation of the Union Budget on February 1, the Jharkhand government, which has repeatedly hit out at the Centre for failing to clear outstanding dues owed to the State, accused the Central government headed by Narendra Modi of adopting a discriminatory approach towards Jharkhand.

The State government has written a number of letters to the Centre asking for release of   outstanding dues. These pending funds will help the government to restart development projects at a time when a major portion of the State’s funds are being diverted towards women-centric cash transfer schemes.

Other States are also struggling

Jharkhand is not the only State where the government faces the pressure of financing populist schemes. In Congress-ruled Himachal Pradesh, the discontinuation of the Revenue Deficit Grant by the Sukhwinder Singh Sukhu government evoked a strong reaction from the opposition BJP, which also accused the government of trying to shift the blame for its own failures on the Centre.

Madhya Pradesh has slashed the Mukhyamantri Ladli Behna Yojana allocation in 2026 to Rs.18,669 crore from Rs.18,984 crore in 2025. In March 2023, the scheme began with a monthly transfer of Rs.1,000 to married women between 21 and 60 years of age, before being enhanced to Rs.1,250, and then to Rs.1,500.

As women voters come out in ever larger numbers to vote, political parties have woken up to the electoral dividends of cash-transfer schemes targeted at women. Here, a file photograph of voters in West Bengal’s Pingla constituency in Paschim Medinipur district.
| Photo Credit:
SUSHANTA PATRONOBISH

Later, the State government decided to stop fresh registrations under the scheme with effect from August 20, 2023. A public interest litigation (PIL) in the Madhya Pradesh High Court challenged the decision. The petitioner argued that stopping fresh registrations in a scheme that continued to operate was illegal, arbitrary, and discriminatory. The High Court dismissed the plea in February 2026, saying judicial review is limited in policy matters, and refused to interfere with the implementation of the scheme.

The monthly payout under the scheme rose to over Rs.1,850 crore due to the increased stipend. Madhya Pradesh faces a stiff challenge in meeting this commitment; expenditure on the scheme will reportedly cost the government over Rs.5.31 lakh crore by March 2026.

In December 2024, Chief Minister Mohan Yadav said the scheme was causing “financial strain” but insisted the government would continue with it because it was a gamechanger as far as women’s empowerment was concerned. The reluctance to roll it back is understandable; it had helped the BJP to win the Assembly election in 2023.

According to some news reports, projections for FY 2026-27 suggest that this scheme alone will cost the State roughly Rs.22,680 crore. But in December 2025, Yadav announced that the payout under the scheme would be gradually increased to Rs.5,000 per month.

According to news reports, Madhya Pradesh has been borrowing Rs.125 crore a day on an average, and the total outstanding debt has climbed to Rs.4,64,340 crore, which is about Rs.43,000 crore more than the State’s entire annual budget.

In Maharashtra, the State government slashed its outlay for its Ladki Bahin scheme last year.

In FY 2025-26, Maharashtra faces its highest debt projection in history at Rs.9.3 lakh crore and the steepest revenue deficit— an estimated Rs.45,891 crore. A promise made by the ruling alliance before the election to hike the Mukhyamantri Majhi Ladki Bahin Yojana payout from Rs.1,500 a month to Rs.2,100 has not been given the green signal in the current fiscal. 

In May 2025, Sanjay Shirsat, a State minister from the Shiv Sena, admitted that the government would not be able to hike the stipend owing to financial constraints. But in February 2026, ahead of the first phase of the Zilla Parishad elections, Deputy Chief Minister Eknath Shinde announced that the payout would be increased to Rs.2,100 “at an appropriate time”. The compulsion of winning elections seems to be pushing politicians into making promises that cannot be fulfilled.

More such schemes, which defy fiscal prudence, are likely to be announced in the coming months with elections approaching in West Bengal, Tamil Nadu, Kerala, and Assam.

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