Cash transfers become India’s consumption shock absorber as states ramp up welfare payouts

India’s expanding network of state-funded cash transfer schemes is emerging as a powerful buffer for household consumption, particularly among low-income groups, even as it raises concerns over fiscal sustainability, according to a Crisil report.

The scale of adoption has accelerated sharply. As many as 17 states and Delhi are set to roll out monthly cash transfers in FY27, up from just four in 2019, reflecting a structural shift in welfare delivery. These schemes, typically targeting women and farmers, require minimal eligibility checks and are increasingly becoming a reliable income stream.

At a median payout of Rs 1,500 per month, cash transfers can cover nearly three-fourths of rural household expenditure and over half in urban areas for the bottom 20 per cent income segment, based on 2023–24 consumption data. This has helped stabilise demand amid inflationary pressures driven by elevated energy prices and climate-related risks.

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The report notes that combined with central welfare measures, such as free foodgrain distribution, PM-Kisan transfers, and rural employment programmes—these schemes are cushioning consumption in the near term. However, Crisil cautions that sustained economic growth will depend on improving underlying income levels rather than continued fiscal support.

Meanwhile, the fiscal burden is intensifying. State borrowings jumped 15.2 per cent year-on-year to Rs 12.4 lakh crore in FY26, outpacing the Centre’s borrowing growth and emerging as a concern for bond markets.

Beyond immediate consumption support, cash transfers are also driving broader social outcomes, including improved spending on health, education, and small businesses, along with greater financial agency for women.