India is witnessing a welfare wave—11 out of 28 states have already rolled out or promised large-scale cash transfers for women, with more joining in ahead of state elections. Over one lakh crore rupees were reserved in 2024-25 for unconditional cash transfers for women, which is more than the GDP of many countries. Currently, states are spending as high as 2.5% of their Gross State Domestic Product (GSDP) and beyond 10% of their social sector spending on unconditional cash transfer schemes. Such investment has played a vital role in supporting last-mile consumption, reducing informal debt, and enabling household investments in nutrition, health, education, and livelihoods. Yet, as India looks to become a developed nation by 2047, is it time to reassess how we design and deliver it to make it more future-ready?

According to NITI Aayog, states account for two-thirds of public spending and one-third of total revenue. It is imperative to ensure the fiscal well-being of states to achieve long-term fiscal sustainability and overall economic growth. Politically motivated expansions can strain state finances, crowding out vital capital investments in infrastructure, education, and healthcare—critical drivers of long-term growth. Without strong governance and accountability, welfare schemes may entrench dependency rather than foster empowerment, undermining both fiscal sustainability and developmental objectives.

These commitments are consistently increasing as social welfare schemes—particularly unconditional cash transfers—are increasingly being seen as key instruments in electoral strategies. A challenge that arises is that these commitments, once introduced, are difficult to scale back due to potential political resistance, even when leadership changes. Unconditional cash transfers provide essential support, states will need to take the lead in steering from a ‘subsistence’ mindset for the citizens to a ‘growth’ mindset. 

In making the shift from a developing to a developed nation, India’s focus needs to be on the right balance of social welfare and growth investments to reduce dependence on government-led assistance. As renowned economists like Karthik Muralidharan recommend, states need to start coming up with innovative welfare models. Consider an Inclusive Growth Dividend as an example, where a fixed amount is paid to each citizen every month in proportion to the economic health of the state, a dividend paid by the state to citizens, similar to how one gets the return on their investment in a firm. These kinds of models can help balance out the political needs of visible monetary commitment to citizens while optimising the use of state funds for social welfare as well as economic growth.

Further, going beyond the quantum of spending on cash transfers, governments need to put in more research-backed efforts into designing core features of these cash transfer schemes, such as conditionalities, targeting, lump sum versus tranches, timing, monitoring mechanisms, and mode of transfer. Conditional Cash Transfers (CCTs) link benefits to behaviors like school attendance, vaccination, or institutional deliveries, aiming to drive social change alongside economic support. CCTs can help in driving sustainable behavioral change. Also, the timing and structuring of benefits—whether disbursed as a lump sum or in smaller, regular tranches—can significantly influence how households use the support, with implications on whether the amount gets used for day-to-day consumption or for newer livelihood opportunities. 

An impactful illustration is Bihar’s bicycle scheme, which provided funds to acquire a  bicycle to girls enrolling in secondary school. It was found that providing bicycles led to 30% more girls enrolling in secondary school on time and cut the gap between girls and boys by 40%. The program was more cost-effective than comparable cash transfer interventions and generated positive externalities—improved safety through group cycling and shifts in patriarchal norms restricting female mobility. These kinds of models can help balance out the political needs of visible monetary commitment to citizens while optimising the use of state funds for social welfare as well as economic growth.

There is no one-size-fits-all methodology for social welfare. Social welfare schemes account for a big chunk of the government expenditure, and their utilisation must be backwards from developmental outcomes. Designing the right mix requires aligning the scheme’s mode with the nature of the deprivation being addressed, state capacity, and the behavioral shifts sought.

This shift in India’s social welfare system is achievable, but only if there is strong political will to make it happen. A few states need to take the lead on making this switch soon, but the question remains which states will take the lead first and when.