₹1,500 a Month: How Cash Transfer Schemes Are Driving Consumption and Debt

Cash transfer schemes by state governments are increasingly becoming an important support for household consumption in India, particularly for low-income groups, according to a report by Crisil Intelligence.

The report noted a sharp expansion in such schemes, with 17 out of 28 states and Delhi offering monthly cash transfers in the current fiscal. To put that in context, back in 2019, there were only four states which did so.

These transfers are typically targeted at women, farmers and low-income households, with eligibility based on income or landholding.

The median transfer amount across states stands at around ₹1,500 per month, which can significantly support household spending, the report stated. For the bottom 20% of households by consumption, this amount could cover 74% of monthly expenditure in rural areas and 51% in urban areas, based on 2023–24 consumption data.

Cushion Against Economic Stress

The report said recurring cash transfers, along with central welfare schemes such as free food grain distribution and income support for farmers, can help sustain consumption even amid rising inflation risks linked to higher energy prices and potential El Niño conditions.

Data in the report revealed that cash transfer schemes have expanded across most parts of the country since 2019, indicating a broad-based adoption of direct income support measures.

Such transfers are particularly effective because they target households with a high propensity to consume, thereby supporting demand. The report also noted that the use of digital public infrastructure has improved delivery and beneficiary reach.

Fiscal Pressures Rise

However, the expansion of cash transfer schemes is adding to fiscal pressures on states. Gross market borrowing by states rose 15.2% year-on-year to ₹12.4 lakh crore in FY26, outpacing the Centre’s borrowing growth.

Twelve of the states implementing such schemes recorded double-digit growth in borrowing, highlighting the cost implications of sustained welfare spending.

Limited Long-Term Impact

While cash transfers can provide short-term relief and stabilise consumption, Crisil cautioned that improving income generation remains critical for sustaining long-term demand growth.

The report added that how households use the transfers varies — ranging from increased consumption to savings or debt repayment — depending on economic conditions and preferences.