How freebies bled Indian economy. Economic Survey suggests a Brazilian model

The Economic Survey 2025-26 flags the unchecked rise of freebies provided by the state governments in India. It says they are draining public finances, widening deficits by leaving little money for investments in infrastructure and human capital. It argues that reforms are needed to the freebie culture, and urges policymakers to adopt outcome-linked, time-bound models like Brazil's Bolsa Familia.

The rising trend of freebies in Indian states has begun delivering an adverse visible economic cost, the Economic Survey 2025-26 has warned. The policy document presented by Finance Minister Nirmala Sitharaman on Thursday, noted that unconditional cash transfers (UCTs), rolled out aggressively by states, ballooned more than fivefold between FY23 and FY26, with spending touching an estimated Rs 1.7 lakh crore this year.

While these schemes, largely targeted at women, have provided immediate income relief and boosted consumption, the Survey argues they have failed to deliver durable gains in nutrition, education or poverty reduction.

Instead, they have deepened revenue deficits, crowded out capital expenditure and tightened states' fiscal flexibility. "The expansion of unconditional cash transfers across several states has contributed to rising revenue expenditure, with implications for fiscal space and public investment at the state level," noted the Economic Survey 2025-26. With committed expenditures now consuming nearly two-thirds of state revenues, infrastructure and human capital investments are increasingly being sacrificed at the expense of freebies or the UCTs.

The Survey cautions that without reform, these transfers risk becoming permanent fiscal liabilities rather than safety nets. It also flags that freebies have reduced female labour force participation.

To arrest the fiscal bleeding, the Survey proposes a shift towards conditional, time-bound welfare. It cites examples of such programmes from other countries, like Brazil's Bolsa Familia, and one each from Mexico and the Philippines. The message is that welfare without outcomes is not fiscally sustainable.

The Economic Survey is prepared by the Chief Economic Adviser (CEA) and the Department of Economic Affairs of the Ministry of Finance. It is tabled in Parliament ahead of the Union Budget. It presents an official assessment of the economy, explaining what is happening, why it is happening, and suggesting policy directions based on data and analysis.