Economists across India may deride “freebies” — or “Revdi”, as they are popularly called in Hindi political discourse — but almost every major political formation has embraced them in practice. Even Prime Minister Narendra Modi, despite publicly criticising the “Revdi culture”, successfully deployed large-scale welfare transfers to the marginalised.

The electoral potential of cash transfers was demonstrated earlier through the PM-Kisan scheme, under which ₹6,000 annually was transferred to farmers. Introduced ahead of the 2019 general elections, the scheme helped soften public dissatisfaction arising from GST-related disruptions and the after-effects of demonetisation.

In Bihar, the ruling coalition transferred ₹10,000 each to nearly one crore women shortly before elections were announced. Such measures inevitably influence political behaviour because they directly touch household finances, particularly those managed by women.

The Congress too has adopted welfare guarantees as a central political strategy and implemented several of them in Karnataka, Telangana and Himachal Pradesh. In Kerala, the Congress-led UDF government headed by Chief Minister V D Satheesan is expected to roll out some of its promised guarantees: free travel for women in KSRTC buses, ₹1,000 a month for girl students in colleges, full interest subvention for youth loans up to ₹5 lakh, universal health insurance coverage up to ₹25 lakh per family, and an increase in social security pensions from ₹2,000 to ₹3,000 for nearly 62 lakh beneficiaries.

Conventional commentary has largely dismissed such measures as fiscally irresponsible. Critics argue that widening deficits, strained liquidity and expanding subsidy burdens will weaken public finances. They also contend that welfare transfers merely perpetuate poverty rather than improve livelihoods. The standard criticism is that governments are “giving fish instead of teaching people how to fish”.

Yet, amid this dominant narrative, an important contrary view has emerged from an unexpected quarter. A recent report by S&P Global titled Cash and Kind(le) (crisil.com) notes that cash transfers by Indian States have expanded sharply and, together with Central welfare schemes, have become a durable source of income support for vulnerable households.

The report observes that economists increasingly accept that such transfers stimulate local demand because poorer households possess a higher “marginal propensity to consume”. Simply put, low-income families spend a much larger share of any additional income they receive compared to affluent households. This increased consumption feeds directly into demand for goods and services.

For households in the bottom 20 per cent consumption bracket, a monthly transfer of ₹1,500 could cover nearly 74 per cent of rural household expenditure and about 51 per cent in urban areas. Such figures underline the significant impact modest transfers can have on consumption demand and growth.

The report, however, stops short of examining the precise correlation between cash transfers and GDP growth. Such an analysis could have offered valuable insights into the multiplier effect of welfare spending.

Proper targeting is, of course, essential. For lower-strata families, direct benefit transfer is not merely welfare, it is an instrument of economic stabilisation, counter to conventional economic orthodoxy.

In fact, the welfare guarantees proposed by the Congress and the pro-poor measures implemented by the NDA government are not fundamentally contradictory. At a time when global uncertainties — including volatile energy prices and tensions involving the United States and Iran — threaten economic stability, targeted cash transfers to the “bottom of the pyramid” can help cushion vulnerable households from external shocks.

Kerala’s challenge, however, lies in financing these commitments while operating within borrowing limits imposed by the Centre. Former Finance Minister K N Balagopal has pointed out that Kerala’s enhanced share in Central tax devolution — from 1.93 per cent to 2.38 per cent under the recommendations of the 16th Finance Commission — could yield an additional ₹11,000 crore annually.

Even so, the full rollout of all guarantees could cost the State over ₹26,000 crore annually (at the upper end of estimates). Better targeting and phased implementation can substantially reduce this amount. Health insurance, educational assistance for girl students and the interest subvention for youth could initially be limited, based on the colour code of the beneficiary ration cards. The UDF went overboard with the free travel for women during the election as the expectation now is that it will be pure gender benefit, no matter the beneficiary’s economic status.

The larger point is that well-designed cash and benefit transfers need not constitute wasteful expenditure. When targeted through direct benefit transfer mechanisms, these so-called “freebies” may well become the booster dose for demand, that the State’s economy needs now.