Indian states have spent ₹1.68 trillion on women's cash transfer schemes, creating fiscal stress with 6 out of 12 states facing revenue deficits. This situation highlights the urgent need for a coordinated national approach to welfare reform across India's federal structure.

The Economics Behind Cash Transfers

Cash transfers have evolved from being dismissed as populist measures to becoming recognized as highly effective poverty reduction tools. Over 180 countries now implement direct cash payment programs due to their proven benefits. Unlike traditional subsidies, cash transfers provide households with choice and flexibility to address their specific needs—whether food, healthcare, or education.

Research demonstrates that this flexibility significantly improves nutrition, school participation, and financial stability while reducing administrative costs and leakages on a national level. The impact becomes even more pronounced when cash is transferred directly to women.

Proven Impact on Women's Empowerment

Evidence from existing state schemes validates the effectiveness of women-focused cash transfers. Key findings include:

These results demonstrate that even modest transfers can substantially boost household welfare while injecting liquidity into local economies.

Growing Fiscal Stress Across States

Currently, 12 states operate unconditional cash transfer schemes for women, creating unprecedented fiscal commitments. Based on FY26 budget estimates, the financial impact is substantial:

A revenue deficit indicates that a state's regular income cannot cover day-to-day spending, forcing increased borrowing. Karnataka's fiscal position illustrates this challenge—moving from a revenue surplus of 0.30% of GSDP to a deficit of 0.60% once UCT spending is included. Similarly, Madhya Pradesh's surplus narrows dramatically from 1.10% to just 0.40% of GSDP.

Debt Crisis and Economic Consequences

State debt levels have reached concerning heights, with combined fiscal deficits rising from 2.40% to 3.00% of GDP between FY06 and FY25. Outstanding state debt now stands at 27.50% of GDP, significantly exceeding the 20.00% level recommended by the FRBM Review Committee.

High debt creates two critical problems:

1. It reduces spending effectiveness through lower spending multipliers, meaning heavily indebted states achieve less economic growth per rupee spent compared to low-debt states.
2. Rising interest payments crowd out capital expenditure and development spending, weakening states' economic capacity and future growth potential.

Path Forward: Coordinated Reform Strategy

The solution requires comprehensive welfare architecture reform rather than abandoning beneficial programs. States need a national mechanism to track fiscal exposure and evaluate scheme outcomes, potentially through a central coordinating body under the finance ministry or NITI Aayog, similar to the GST Council.

The original universal basic income concept envisioned cash transfers replacing subsidies and overlapping schemes, not adding to them. This demands consolidating overlapping programs and discontinuing underperforming ones. Such reform requires difficult political choices and broad consensus, challenging in the current scenario but essential for sustainable welfare delivery.

Without coordinated action, well-intentioned welfare schemes risk creating long-term fiscal instability that could ultimately undermine their poverty reduction objectives.

The government's decision to allow 100% foreign direct investment (FDI) in the insurance sector is expected to attract significant global capital and help lower insurance premiums, according to Department of Financial Services (DFS) Secretary M Nagaraju.

Global Interest and Market Impact

Nagaraju told CNBC-TV18 that India is increasingly seen as a key investment destination by global insurers, with several international players expressing interest in raising their stake and expanding operations. The government aims to encourage leading global insurers, particularly from Europe and the US, to set up subsidiaries in India.

He described the proposed Insurance Amendment Bill as the biggest reform in the sector, designed to improve capital availability, strengthen competition, and enhance consumer outcomes. "With higher capital infusion, insurance premiums should not increase. Over time, we expect them to come down," Nagaraju said.

Regulatory Oversight and Commission Controls

The government is keen to empower the Insurance Regulatory and Development Authority of India (IRDAI), particularly in overseeing distribution costs and agent commissions. High commissions often push up premiums or strain insurers' capital ratios, ultimately affecting consumers.

"There have been complaints that some agent commissions are excessively high. This either leads to higher premiums or puts pressure on capital adequacy. In both cases, consumers suffer," he said, adding that IRDAI is expected to issue draft regulations on agent commissions.

Governance and Structural Reforms

The government has received multiple suggestions on insurance law reforms but believes more deliberation is needed before approving composite insurance licences or open architecture for individual agents. "We felt it was not the appropriate time to approve these measures," Nagaraju said.

Sector Performance and Outlook

All public sector insurance companies are performing well, and there are no current plans to consolidate them, Nagaraju said. He also highlighted that credit-deposit ratios are healthy in most public sector banks, and the government has no concerns regarding the deposit front.

Insurance density and penetration in India have been rising steadily, but global participation remains limited. The reforms are expected to deepen foreign investment, strengthen regulation, and improve consumer outcomes while maintaining sector stability.