The political landscape has increasingly been shaped by promises of cash transfers and free goods, with election campaigns across at least 17 states. But beyond electoral politics, this reflects a deeper structural shift in how India delivers welfare—from legally enforceable rights in the 2000s to technology-mediated transfers to beneficiaries now.
A new report, ‘Realising rights: A handbook of welfare in India’ by Azim Premji University, argues that while the present-day political parties favour these immediate transfers, arguably for swift electoral results, the shift risks hollowing out social accountability, eroding universal access, and, most importantly, financially straining core public sectors like healthcare and primary education.
Mint explores the shifts in India’s welfare story and their implications:
New welfarism
India’s welfare landscape has evolved dramatically since independence. The 1950s to 1970s were focused on growth and poverty alleviation, and duty-bound contributions from citizens.
The 2000s saw rights-based decentralized legislation, such as the right to education and a job-guarantee programme. India has transitioned toward "new welfarism," characterized by a preference for centralized direct benefit transfers (DBTs) of tangible goods like cooking gas, housing allotments, and cash transfers over intangible public goods like health and education.
The report argues that while new welfarism backed by the Jan Dhan-Aadhaar-Mobile (JAM) trinity has streamlined the distribution of funds, it has also introduced systemic barriers and exclusions by shifting from an active rights-holder approach to passive state beneficiaries. The fiscal costs attached to the new system are hindering India’s ability to spend on health, education and nutrition, the key pillars of human development.
At centre’s discretion
India’s rapid economic growth has many structural weaknesses, including a disconnect between output expansion and employment generation. For years, this disconnect was addressed through rights-based schemes. The current framework has become a discretionary state provision.
Over the past decade, the centre has minimized fiscal transfers to states by utilizing non-shareable cesses and surcharges and prioritized conditional centrally planned schemes over state-designed initiatives, the report noted. This clearly shows up in the data. Since 2016-17, the allocations under centrally sponsored schemes have shot up, recording a compound average growth rate of 26.5%.
In comparison, allocations to the state plan schemes, central plan schemes and special plan schemes collapsed nearly 30% during the same period. This signals the centre is concentrating non-tax transfers on centrally planned schemes that often come with conditions not always aligned with state priorities, the report noted.
The state of states
As fiscal transfers come with conditions, state governments have driven most of India’s social sector spending. The state government have raised their per capita social sector spending, suggesting a commitment towards human development.
In contrast, the centre’s per capita social spending has barely grown. Since these figures are not inflation-adjusted and may be based on limited population projection data, the real picture may not be as good for states or worse for the centre.
Nevertheless, data does indicate that the state expenditures on social services exceeded those of the Centre by more than eight times after 2013-24, up from four times in prior years.
“This expansion by the states is particularly notable because it has been achieved despite a changing fiscal structure and a reduced role of financial transfers from the Centre,” the report noted.
Cash conundrum
The states' commitment to deliver social sector spending is now being challenged by competitive cash promises. The rapid expansion of unconditional cash transfers across states have exacerbated fiscal burden, shifting the composition of revenue expenditure.
Data from Project DEEP shows a 20-fold increase in cash transfer allocations between 2015-16 and 2024-25, now consuming 11% of total social sector spending, the report noted.
The 16th finance commission noted that the share of cash transfers within states' subsidies and transfers surged from 3% in 2018-19 to 20% in 2025-26. This poses challenges to states abilities to spend on health, crowding out human development investments. Given states’ limited fiscal space, the trade-off is clear—multiple states now allocate vastly more resources to these cash schemes than to their entire health budgets.
Jharkhand, Karnataka, West Bengal, and Maharashtra clearly stand out, with their allocations to cash transfers being 113-208% of their health spending, the report highlighted.
Falling behind
India currently represents a sixth of humanity, giving it a demographic edge and a massive presence (around 9%) in global GDP. Yet, its fiscal constraints (low tax-to-GDP ratio of around 17%) leads to suppressed social spending in India.
India spends just 4.0% of GDP on social protection (excluding health) as percentage of GDP, which fall below upper middle-income countries (8.5%), South Africa (5.4%), Vietnam (5.1%), and Thailand (4.9%), while only tracking slightly ahead of countries like the Philippines, Nepal, Pakistan, and Bangladesh.
The report argues that international evidence consistently shows public spending on social protection and welfare programmes delivers positive social, economic and political outcomes.
In India, “the trajectory of social welfare spending in India trajectory of social welfare spending in India can be characterized as one of largely missed opportunities, punctuated by important positive developments (especially in certain states)” and future economic trajectory will depend on how governments respond to this challenge.
Rupanjal Chauhan contributed to this story.