‘We already have quasi universal income’: What the rise of cash transfers mean for the ‘India story’

Welcome to The India Fix by Shoaib Daniyal.

Few policy tools have captured the imagination of India’s politicians and voters as cash transfers. From Modi to Mamata, every government in India is falling over itself to hand out money. Even though the actual sums are quite modest, this represents a stark welfare choice for the world’s largest country. It seems that the Indian state has moved away from a state’s classical job of building human capital by funding public goods such education and health and decided that handing out (rather modest) sums of cash will do the job – or at least that’s the best it can do.

The fact that this also ties in with a global debate on universal basic income – an unconditional cash transfer from governments to citizens – makes the ideas and arguments around India’s cash transfer regime fascinating.

To unpack this, on the India Fix this week, I interviewed Yamini Aiyar. Former president of the Centre of Policy Research in Delhi and currently a visiting fellow at Brown University in the United States, few people understand this subject better than Aiyar.

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Both Jharkhand and Maharashtra saw the incumbent winning after they launched cash transfers specifically for women. Do you think it was a major factor in the election?
We have to look much more carefully at the data and also keep in mind that there are many factors that contribute to the final electoral outcome.

But the data does show a close correlation between political attribution for welfare benefits – where delivery of a scheme is attributed directly to the party leader – and voting choices. Political scientist Neelanjan Sircar and I have a new paper in EPW [Economic and Political Weekly] examining this. This direct attribution has been made possible because the technology supporting cash transfers allows disintermediation – bypassing the delivery machinery at the grassroots.

This combined with the communication and branding that supports delivery allows for a politics that presents cash transfers to citizens as “direct” offerings from the party leaders. It’s not uncommon to hear Modi ki guarantee or chief minister’s scheme, for example.

Unlike in the past, where such schemes required state machinery (panchayat and municipal governments, party intermediaries were involved in actual “delivery”), these cash transfers are “direct” from the leader to the citizen. Neelanjan and I call this form of welfare “techno-patrimonialism”.

Patrimonial systems where legitimacy for the core functions of the state emerge from the personal authority of the leader. Welfare or rather the type of welfare the state delivers is a product of what the leader deems is fit for society. Citizens’ are cast as labharthis [literally “beneficiaries”], recipients of what the benevolent leader offers, rather than rights-bearing agents making accountability claims on the state.

It cuts out the entire bureaucracy and the actual party. So one man/woman is getting the credit for the entire scheme?
I mean, yes. It’s a bit more nuanced in the sense that, of course, the party and the bureaucracy plays a role in the implementation. But it is a direct benefit transfer. It goes directly. And therefore, it’s much easier to build that direct link between the leader and the people. In reality, the panchayat is involved, the local administration is involved: there are multiple actors that contribute to actual delivery in a direct benefit transfer.

But the act of the transfer itself is direct from the political leader – the communication is designed in that way. And that that emotive connection has become a core part of the nature of our politics today. If you look across all political parties now, India’s party politics is an extremely centralised machinery which operates on the cult of personality of the party leader. And these schemes play a very important role in shaping that cult of that personality and legitimising it.

And why do you think it’s become so popular to have direct benefit transfers targeted at women?
Let’s unpack this a little bit more. I think the first question to ask is why have DBTs [direct benefit transfers] become popular? And then we’ll talk about the specific nature of the targeting. I would argue that there are actually two factors at play here.

One, most crucially, has been the evolution of the discourse on state capacity in India. It’s well known that when it comes to one off, mission mode activities, the Indian state demonstrates high capacity. We can do elections at scale and count faster than California! Although now there seems to be a new set of questions being asked even about the quality of our elections – but let’s put that aside for the moment. We can do mission-mode schemes: build the Jan-Dhan-Aadhaar network [to link accounts, mobile numbers and Aadhaar cards]. We can do the Kumbh Mela. We can get Chandrayan to the moon.

But when it comes to the ability of the state to deliver on core public services, where all arms of the state have to operate in a dynamic fashion, where state and society have to come together collectively to achieve a common public good , the Indian state has been appallingly and alarmingly incompetent. We are a country that can’t fix air pollution, we are a country that still can’t, despite all the claims on Swachh Bharat, do basic sanitation. Our cities are garbage dumps, our public school system still can’t improve basic learning outcomes. And this has been a consistent reality that the Indian citizen has dealt with.

Curiously, this lived reality of India’s incompetent state has reduced the appetite for any genuine investment in India’s public systems. It is almost as though we are convinced any attempt at investing in the state will lead to failure, so let’s find ways to bypass it altogether. In some ways, the 1991 moment shaped our collective imagination of the state captured in Gurcharan Das’ infamous line, that India grows at night while the state sleeps. The state with its excessive regulation and licensing was basically undermining the animal spirits and the productive capabilities of India. Getting the state out of the way was the best way to unleash India’s potential

And the same imagination played out in how we thought about core public services. We kept looking for alternatives outside of the state. In the early 2000s there was a lot of debate around public-private partnerships and school vouchers, for example..

This clashed with another set of ideas, which gained prominence in the 2000s, that of expanding the welfare state via rights based legislation. This was about strengthening the public system through a kind of virtuous dynamic of bottom-up pressure that would put pressure on the state to to actually improve the quality of its service. For example, the National Rural Employment Guarantee Act, the Right to Education Act and eventually the Right to Food, all emerged from that imagination.

But it was a project that was implemented in a half-baked fashion. It was too centralised, there was very little thinking around how to reimagine the architecture of the state to be able to more effectively respond to these bottom-up pressures. But the other imagination was that you know the state is just too clunky and too broken and too entrenched in all forms of vested interests and local political economy that goes against its ability to deliver.

And therefore rather than building out this clunky welfare architect through rights-based legislation, we must look elsewhere, and cash transfers offered a tantalising alternative. And, in some senses, it became a clash of imagination: of deeper state building versus less state. The latter saw cash transfers as a way to bypass the state and allow markets to solve for this very real failure of the state.

The second very important element that has now contributed in the contemporary moment to my reading to this rush towards cash is also about the poor state of the Indian economy. Building on [economist] Rathin Roy’s framing of the “compensatory state”, the nature of the Indian economy and our economic growth narrative from the 1990s onwards has always been one of jobless growth. And with time, the challenge has only grown and with it the political pressures on the state to respond to that have only increased.

But we don’t have the economic imagination to solve for this very critical structural problem in our economy. And so politicians will use the instruments that they have to respond to these pressures. And in some senses the DBT cash transfers have given them this unique instrument and so it is sort of feeding the beast of the compensatory state in that sense.

I want to put a pin in the women’s angle because you’ve raised a very important point and I want you to just expand on that a bit further. It seems very bleak that the Indian state is almost giving up on what is the state’s primary job of building human capital and cash transfers are almost like this pressure valve that is getting released. Of course, in the short term, maybe it’s the only thing that can be done but in the medium or the long term this is not a very good thing, is it?
Yes, that is my view on the matter. But let me nuance it a little bit. I think there is no question that economies must have a social protection floor that enables decommodification of labour, protects rights and the economically vulnerable. And across the world, I think that is the foundation of the welfare state. The challenge is that the way in which we are building out our social protection architecture now it’s actually completely delinked from the labour market.

The Indian welfare state that is actually evolving is pretty much a substitute for the state’s failure to be able to build an economy that can actually provide jobs and ensure basic minimum wages. And this is exacerbated by the fact that the Indian state has just been appalling on very fundamental things like health and education.

Mostly, political parties don’t have the imagination or the energy for long haul solutions and direct benefit transfers give them a quick fix which they can deploy. Now I am not suggesting that this doesn’t provide for some fairly basic consumption smoothing that is necessary in times of deep vulnerability. But we do need to ask ourselves as a society and as a policy if this is the if this is what we want our state to do, and what happens beyond this.

And if you look closely at public expenditure, it’s not like the welfare state is expanding. We are doing cash transfers as substitutes for many other things. So you will see in budget after budget after budget, we did find that there was very clear expenditure switching, moving money away from health and education, nutrition towards cash transfers.

At the national level, between 2014-2024, as cash transfers and DBTs increased, overall social expenditure as a proportion of total government expenditure declined, with the exception of the pandemic years, from 22% to 19% in 2024-’25. And this is for a country that spends appallingly low amounts on key public services as a percentage of GDP compared to any other country at similar levels of GDP. Some of the latest data I’ve seen shows about 9% of revenue expenditure, from a collection of states, is going to these cash transfers.

And it’s that money that’s essentially taking away from investments in education, health, even sometimes capital expenditure. So it is very important for us to see whether we are sleepwalking our way into a certain kind of welfare architecture that has deeper repercussions in the long term and should we be asking whether we should be investing more in the more structural and foundational aspects of the Indian economy and of building human capability.

Going back to actually where we started: why do politicians find it so attractive to give these cash transfers to women? It’s now spread like wildfire across so many states.
Look, in order for the state to deliver cash or to deliver anything actually, it has to make citizens legible to the state. And this has historically been how we think about the working of a state, going back to the emergence of the census as an instrument through which the state sees its citizens. And in some senses the emergence of women as the recipients of cash transfers comes from the fact that women are very legible, visible to the state.

But I think there is more than that. There has been a slow and I would argue a very progressive attempt by our politicians to cultivate women as a political force and arguably even a voter base. Nitish Kumar and, even going back, Chandrababu Naidu in undivided Andhra Pradesh are good examples of this.

Society has evolved and increasingly women have become articulate political actors, arguably even within the household. Women have increasingly become visible in expressing political preferences and political choices that may be different to what the household would expect them to do.

Modi of course recognised these shifts and then very effectively tried to build a female voter base. It started with Ujjwala [cooking gas connections] and then Swachh Bharat [building toilets] etc and evolved into this direct cash transfer mold. And it was remarkably successful and other political parties have picked up on it to offer cash transfers to women.

At one level this is actually a very good thing for strengthening gender equity in society and enabling economic empowerment for women. Women having access to cash has a lot of potential in shifting the dynamics of both intra household bargaining as well as broader societal engagement for women. And politically it has become an extremely successful tool through which politicians are seeking to build a constituency of women voters.

However, I think there are also limitations in this political imagination. Politicians may be quick to draw on the grammar of empowerment but at the end of the day cash transfers are designed as quick fixes. The BJP uses empowerment in a very interesting way: it uses the word to describe cash transfers as tools of what the government is giving to empower the beneficiary to now lift themselves out of poverty. It’s a very different imagination of empowerment as rights-bearing citizens with agency. As a consequence these become a very transactional instrument rather than a broader political vision that is genuinely about shifting gender dynamics in our society.

Final question. So you know one of the things that I found interesting was with respect to women’s cash transfer schemes: how big the net was. It includes a vast percentage of the population since it also folds in the families of the women. So, do you think that this is some sort of an first step to an Indian universal basic income?
I think there’s no debate anymore. We already have a quasi universal income at this point, as both Nilanjan [Sircar] and I have been arguing for some time. Even the eligibility criteria are now designed in a loose enough way for it to be quasi- universal by the back door.

But we need to have a deeper debate on the kind of politics that it is fuelling and the implications this has on the broader dynamics of citizen-state relations.

Do you think we can afford it?
Well we’re already in it. In any economy that is simply unable to deliver opportunities to the vast majority, the political incentive for using fiscal policy to resolve for structural challenges in the economy are just too tantalising.

And once you go down this road, a rollback is near impossible. Let me also end by saying India even today spends far less than any other country had comparative levels of GDP on its welfare state. Therefore, whatever we are spending is nowhere near enough.

But, in some ways, that makes the discussion about what we should be spending on perhaps even sharper – but let’s put that aside for the moment. We should be spending more and I would rather that we as a society spend more money on our poorest than on feeding our fat cats.

And hence discourse around revdis and freebies is deeply troubling for a society with levels of inequality as high as India has.

But we do have to ask whether the form of welfare that we are now building out is going to address the deep structural challenges that India confronts. In the long run, whether this form of welfare will resolve these deeper structural challenges? And whether we will move forward to a more equitable and more inclusive economy and society. And I feel that that may not be the case with the UBI model of welfare.