India has a long history with economic tools such as freebies. It continues to shape India’s election trajectories despite the inefficiencies of such schemes. As India seeks higher economic growth, it continues to get stuck in the freebie ecosystem, as freebies are often politically difficult to unwind. The real trade-off is between short-term welfare relief and long-term growth supporting investment.
12 states in India have budgeted Rs 1,68,040 crores in 2025-2026 budgets for women-targeted unconditional cash transfers, and six of these states budgeted a revenue deficit. The Economic Survey of 2025-2026 flags the same in its report and warns of the consequences of the same if such schemes scale up.
In the Economic Survey of 2024-2025, reports that among a surveyed group of economically vulnerable rural households, 77 per cent reported receiving cash from either the Union government or a state government, and it explicitly notes that such transfers are often low-conditionality. In some cases, free power schemes alone cost tens of thousands of crores annually. On the other hand, capital expenditure, such as roads, irrigation, health infrastructure, public transport systems, often gets squeezed. One classic example is power. When power is free, utilities bleed. Distribution companies accumulate losses, and that means investment in grid upgrades slows.
However, once announced, these tools become politically impossible to withdraw, even if they are inefficient. Voters respond to visible, immediate benefits, such as freebies, rather than infrastructure growth. This disproportionately affects India’s growth as the Marginal Cost of Public Fund is high, and a growing India inherits higher debt and fewer public assets.
What India needs is not freebies, but more investment in health and education to reduce lifetime inequality, infrastructure that generates jobs, and transparent fiscal accounting so voters know the true cost of promises.