{"id":85715,"date":"2026-02-03T13:03:07","date_gmt":"2026-02-03T07:33:07","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=85715"},"modified":"2026-02-03T15:13:59","modified_gmt":"2026-02-03T09:43:59","slug":"rising-fiscal-risks-in-india","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rising-fiscal-risks-in-india\/","title":{"rendered":"16th Finance Commission\u2019s Warning On Rising Fiscal Risks"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><strong>Fiscal Risks Latest News<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The 16th Finance Commission has cautioned states against the rapid expansion of large, unconditional cash transfer schemes, which now account for over 20% of total state subsidy spending.\u00a0<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Understanding Cash Transfers in India<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Cash transfers have increasingly become a preferred welfare instrument in India\u2019s public finance framework.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These transfers involve direct monetary payments to beneficiaries, usually deposited into bank accounts using the <a href=\"https:\/\/vajiramandravi.com\/current-affairs\/jam-trinity\/\" target=\"_blank\">Jan Dhan-Aadhaar-Mobile (JAM) trinity<\/a>.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">They are broadly classified into <\/span><b>conditional<\/b><span style=\"font-weight: 400;\"> and <\/span><b>unconditional<\/b><span style=\"font-weight: 400;\"> transfers. While conditional transfers are linked to outcomes such as education or health, unconditional cash transfers impose no performance or usage conditions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Historically, unconditional transfers in India were limited to social security pensions and farmer income support schemes.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, over the past decade, especially after improvements in digital delivery systems, states have expanded cash-based welfare to wider population groups.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This shift has altered the composition of state subsidies, raising questions about long-term fiscal sustainability.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Trends in State Subsidies and Cash Transfers<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to the 16th Finance Commission, large-group unconditional cash transfer schemes now constitute <\/span><b>20.2% of total state subsidy expenditure<\/b><span style=\"font-weight: 400;\"> in the 2025-26 Budget Estimates, a sharp rise from <\/span><b>just 3% in 2018\u201319<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This indicates a structural shift in how states allocate welfare spending.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Commission notes that while pensions and farmer support accounted for nearly <\/span><b>84% of unconditional cash transfers in 2018-19<\/b><span style=\"font-weight: 400;\">, their share has fallen significantly.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">By 2025-26, large-group schemes alone account for <\/span><b>47.4% of all unconditional transfers<\/b><span style=\"font-weight: 400;\">, overtaking traditional categories.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This reflects a growing preference for politically visible, broad-based cash schemes over targeted or merit-based subsidies.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>State-Level Patterns and Key Schemes<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Commission highlighted <\/span><b>Maharashtra, Odisha, and Jharkhand<\/b><span style=\"font-weight: 400;\"> as states that have witnessed the steepest rise in such spending over the past two years.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Major schemes include:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Majhi Ladki Bahin Yojana (Maharashtra)<\/b><span style=\"font-weight: 400;\">: Rs. 1,500 per month to eligible women.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Gruha Lakshmi (Karnataka)<\/b><span style=\"font-weight: 400;\">: Rs. 2,000 per month to women heads of households.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Lakshmir Bhandar (West Bengal)<\/b><span style=\"font-weight: 400;\">: Monthly transfers to women beneficiaries across social categories.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In Maharashtra, spending on large-group cash transfers rose from <\/span><b>0.6% of total revenue expenditure in 2023-24 to 6.2% in 2025-26<\/b><span style=\"font-weight: 400;\">, while Jharkhand saw an increase from <\/span><b>0.8% to 13%<\/b><span style=\"font-weight: 400;\"> over the same period.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Odisha recorded a jump from <\/span><b>nil to 5.1%<\/b><span style=\"font-weight: 400;\">. These sharp increases indicate a rapid fiscal expansion rather than a gradual policy transition.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Fiscal Concerns Raised by the 16th Finance Commission<\/strong><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Finance Commission has warned that the unchecked expansion of unconditional cash transfers can destabilise state finances in the long run.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Such schemes impose a recurring fiscal burden and reduce flexibility in budgetary allocations.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Commission observed that many of these transfers are poorly targeted, expanding into large beneficiary bases that dilute their redistributive effectiveness.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A major concern is the crowding out of capital expenditure. Rising revenue spending on cash transfers limits states\u2019 ability to invest in infrastructure, education, and health, which are critical for long-term growth.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Commission also cautioned against financing these schemes through off-budget borrowings, guarantees, or revenue assignments, calling such practices fiscally imprudent due to reduced transparency in public accounts.\u00a0<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><strong>Recommendations for Reform<\/strong><\/h2>\n<ul>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">To address these risks, the 16<\/span><span style=\"font-weight: 400;\">th<\/span><span style=\"font-weight: 400;\"> Finance Commission has recommended:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Periodic and rigorous review of subsidy schemes<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Rationalisation of beneficiary bases<\/b><span style=\"font-weight: 400;\"> to ensure support reaches the most vulnerable.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Introduction of sunset or exit clauses<\/b><span style=\"font-weight: 400;\">, especially for non-merit and general unconditional transfers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Discontinuation of <\/span><b>off-budget financing mechanisms<\/b><span style=\"font-weight: 400;\"> for welfare schemes.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Commission emphasised that welfare policies must align with fiscal responsibility and deficit reduction goals, rather than becoming permanent entitlements without review.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/cities\/mumbai\/16th-finance-panel-exit-clauses-must-for-cash-transfer-schemes-10510109\/#:~:text=%E2%80%9CThere%20is%20a%20need%20to,to%20periodically%20review%20such%20subsidies.\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The 16th Finance Commission flags fiscal risks from rising unconditional cash transfers, highlighting their growing share in state subsidies and implications.<\/p>\n","protected":false},"author":21,"featured_media":85644,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[5113,60,22,59],"class_list":{"0":"post-85715","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-fiscal-risks","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/85715","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=85715"}],"version-history":[{"count":2,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/85715\/revisions"}],"predecessor-version":[{"id":85754,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/85715\/revisions\/85754"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/85644"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=85715"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=85715"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=85715"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}