Since 2020, Unconditional Cash Transfer (UCT) schemes have become an important electoral strategy in India, particularly to attract women voters. Some examples of such schemes include the Kalaignar Magalir Urimai Thittam in Tamil Nadu, the Lakhsmir Bhandar in West Bengal, and Gruha Lakshmi Yojana in Karnataka. Yet, despite increasing the amount of cash before the 2026 elections, some governments which implemented these schemes were defeated. One possible explanation for the loss could be the political cost associated with UCTs.

UCT schemes are well-intentioned as they provide financial support to women. They partially advance SDG (Sustainable Development Goal) 5.4, which calls for a recognition of women’s unpaid domestic and care work. According to the Ministry of Finance’s latest Economic Survey, States are expected to spend about $18 billion on UCTs in 2025-26, much of it targeted towards women.

Critics, however, argue that these schemes function as electoral “freebies.” Their financing often requires expenditure switching or larger fiscal deficits, and reduces resources available for productive investments, including employment generation and self- employment programmes. Moreover, once households become dependent on UCTs, withdrawing them is difficult as political parties encourage competitive welfarism.

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Targeting challenges

A fundamental challenge in targeted UCT programmes is beneficiary identification. Since governments cannot directly observe incomes for most workers in the informal sector, they rely on proxy indicators such as land ownership, electricity consumption, or household assets. This inevitably produces both inclusion errors (benefits reaching ineligible households) and exclusion errors (eligible households being left out). These targeting errors, whether real or perceived, can impose significant political costs.

The Kalaignar Magalir Urimai Thittam scheme illustrates this challenge. Although the ruling party at the time promised ₹1,000 per month to all women-headed households before the 2021 election, fiscal constraints led the government to restrict eligibility based on income, land ownership, and other criteria when the scheme was launched in September 2023. Initially, about 1.13 crore women were covered. Following widespread complaints from women who believed they met the eligibility criteria, another 16.94 lakh beneficiaries were added in December 2025. The scheme cost ₹13,807 crore in 2025-26.

Despite the expansion, dissatisfaction persisted. Many women who considered themselves unfairly excluded reportedly became even more aggrieved when eligible beneficiaries received an advance payment of three months’ entitlement along with a special summer relief payment. Although the precise electoral impact cannot be measured, even modest shifts in voter preferences can influence outcomes in closely contested constituencies.

Similarly, the Lakshmir Bhandar scheme, which was introduced in 2021 to provide monthly assistance to women, faced allegations for including non-residential citizens. Although benefits were increased before the 2026 election, the incumbent government lost power. Maharashtra’s Mukhya Majhi Ladki Bahin Yojana and Karnataka’s Gruha Lakshmi Scheme also faced inclusion and exclusion errors respectively. 

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These experiences highlight an important feature of targeted welfare programmes. Political costs arise not only from actual errors but also from perceived ones. Individuals who fail to satisfy official eligibility criteria may nevertheless believe that they have been treated unfairly. Likewise, households that legally qualify may be perceived as undeserving because they appear relatively affluent. Such perceived targeting errors can be as politically consequential as actual administrative mistakes.

This reveals an inherent tension between economics and politics. Economics favours targeted programmes so that scarce public resources reach those most in need. Politics, however, rewards broader inclusion because voters evaluate governments not only by the benefits they receive but also by those they believe were unfairly denied. Consequently, targeted UCT programmes carry an unavoidable political cost.

Conditional cash transfers and other incentive-based welfare programmes offer a more sustainable alternative. Linking benefits to socially desirable outcomes produces broader developmental gains. Tamil Nadu’s Midday Meal Scheme illustrates this principle. Since participation depends on school enrolment, self-selection reduces grievances.

The broader lesson is that welfare programmes tied to education or other desirable behaviours can achieve developmental objectives with lower political costs. In contrast, UCTs remain inherently vulnerable to inclusion, exclusion, and perceived targeting errors.

These political costs should be recognised alongside their economic and social benefits when designing future welfare policies

K. R. Shanmugam is Former Director, Madras School of Economics and Economic Consultant to GoTN. Sankarganesh Karuppiah is Indian Revenue Services Officer