Cash transfer programs are those interventions that involve the government or donors sending money, as opposed to food, fuel, or services, to individuals or households who meet certain conditions. This is different from other forms of transfer programs, which often try to specify what people need to consume. Instead, with cash transfer, people are given the power to make their own decisions about what they need most, which could be food, rent, or school fees. This can be an emergency response, a long-run social protection tool, or part of a more ambitious vision of universal basic income. This move towards “money, not goods” is at the heart of the debate over welfare and work incentives

Under cash transfers, an important distinction is that of conditional versus unconditional transfers. The former involves a set of requirements that must be fulfilled by individuals receiving transfers, such as keeping children in school, attending health check-ups, and doing public works. If requirements are not fulfilled, then transfers are reduced or even terminated. The distinction is important because it has implications for work incentives. For instance, conditions can be used to deliberately support work incentives. On the other hand, unconditional transfers raise more difficult issues about whether “free money” crowds out work.

Universal Basic Income (UBI) takes the idea of unconditional support to the extreme: it is a regular payment made to all individuals on a regular basis, regardless of their income, work status, or family composition. In the abstract, UBI is supposed to be unconditional, universal, and individualistic. It is often defended as a necessary form of income security in a post-automation world. It is the generosity and permanence of UBI that make it the focal point of the central concern in the debate: won’t people work less or not at all if they know they’ll get a guaranteed income regardless?

In India, for example, the contrast between existing schemes such as MGNREGA and suggestions for more direct cash transfers can be seen to highlight this change in welfare provision. The MGNREGA scheme is a demand-driven employment guarantee scheme in rural India, in which the state guarantees up to 100 days of public work at a fixed wage. The move towards more “necessity-driven” schemes, in which the state provides cash transfers in the event of a household experiencing some form of need, closer to the idea of basic income, would break the link between welfare and work. This leads us to the question of the essay: if we move from “work for cash” to “cash for need” in our welfare provision, are we risking the willingness of people to engage in the labour market, or can we really achieve both with the right kind of transfers?

From the supply of farm workers to the educated youth who await “perfect” jobs, cash transfers may sometimes reduce the urgency to seek employment. In rural India, schemes like PM-KISAN offer assured income support to land-owning farmers, which may reduce the urgency for them

to seek employment as farm labour on other people’s farms during the lean season. This may exacerbate the problem of farm labour shortages and drive up rural labour costs, particularly during harvest times, even if the objective of these schemes is to offer income support and not to withdraw labour supply. At the other end of the spectrum, India’s already high youth unemployment rate, which is usually many times higher than the overall unemployment rate, also coincides with a growing perception that the state will step in with stipends, scholarships, and/or allowances, leading to a situation where some youth may be tempted to await better job opportunities instead of taking up available but imperfect jobs.

On the macro front, large-scale welfare transfers also raise questions of the productive use of scarce public resources. Programmes such as the Ladli Behna or other targeted cash transfers, although they may provide consumption relief in the short term, have a low money multiplier effect in the economy in comparison with optimal public investments. This is because a large portion of these expenditures is spent on small, fragmented consumption rather than investments that increase long-term productivity. Every rupee spent on recurring cash transfers is a rupee not spent on capital expenditures on infrastructure, education, or healthcare, in which we have seen stronger growth effects. The Reserve Bank of India has already highlighted that with increasing committed revenue expenditures, which include subsidies and transfers, deficits are rising, and many states are facing difficulties in sustaining high levels of capex, which could impact the very growth we seek to finance our welfare programmes in the future

At the social level, many and large transfers can gradually change people’s views on the relationship between work and welfare and the state’s role in this process. If these transfers are designed and implemented as universal “rights” rather than targeted support for the most vulnerable members of society, there is a concern that this can lead to an “entitlement” that undermines the normative relationship between citizenship and economic contribution for adults. There are also concerns that these transfers can be abused: although most poor people will spend these additional transfers on food, housing, and schooling, there is a concern that a non-trivial fraction will be spent on “sin goods” like alcohol and cigarettes, which can have negative implications for individual and family welfare and work incentives. Even though serious research finds that this abuse may be smaller than popular stereotypes assume, the perception that taxpayers’ money is being spent on unproductive and possibly damaging activities can reinforce public opposition to welfare and reinforce the “cash makes people lazy” narrative in politics.

Part II

For a country such as India, these incentive effects are of particular concern as they coincide with a limited window of opportunity to benefit from the demographic dividend. “A large youth bulge has the potential to drive growth for decades to come; a portion of the youth bulge perceiving welfare schemes as an ‘easy way out’, and thus engaging in voluntary unemployment or under-employment, increases the burden while undermining the growth engine.” This perpetuation of youth unemployment and the rising demands for welfare interventions serves to reinforce the notion that, under the right circumstances, cash transfers can have a detrimental impact on the desire to seek employment and the long-term sustainability of employment-based growth – supporting the hypothesis that “cash transfers can reduce the incentives to work and thus undermine the foundations of employment-based growth”.

Schemes like Ladli/Lakdi Behna prove that it is possible to provide more freedoms to women at the bottom of the pyramid by transferring small amounts of money regularly, rather than encouraging laziness. The direct money transfer to women can provide more bargaining power to her within her own family, reducing her dependency on her husband or in-laws. She would have some say in how to utilize that money. Even if it is a small amount, it could be used to buy bus fare, basic mobile phones, etc., to make it easier to find work. Thus, the “work effect” of such transfers could be positive in the medium term because it would allow women to turn down bad work today and invest in better work tomorrow.

Similarly, PM-KISAN can be seen as a limited form of ‘hedge’ rather than a subsidy to ‘idle’ farmers. Agriculture as an occupation is highly risky, and small and marginal farmers do not want to invest in seeds, fertilisers, or techniques to improve productivity because a bad monsoon can wipe them out. The predictable, if small, cash transfer can thus not only stabilise their consumption but also provide them with just enough security to take risks—trying out new crops, purchasing inputs in time, or holding out for better market prices rather than distress sales. Rather than withdrawing their labour, such a ‘floor’ effect can thus encourage more entrepreneurial behaviour in farmers as an occupation, which in turn depends on their continued engagement in working the land more efficiently, not less.

The issue of high youth unemployment in India cannot be attributed to welfare “spoiling” the young. From the demand side, the economy is not producing enough quality formal sector jobs to match the number of young people entering the labour market. From the supply side, there is a skills mismatch in that the quality of graduates lacks the technical, digital, or soft skills that the economy demands. In terms of education, there is also a lack of development in the vocational education sector, as well as a lack of social value placed on such routes. There are also unrealistic expectations in terms of young people wanting to enter the labour market in “good” jobs with good pay. The small amounts of money given to young people as a stipend to look for work may extend their search period, but this is not the main issue. In fact, such money can be used to fund more productive activities, such as migrating to urban areas in search of employment.

There is also a normative argument grounded in India’s constitutional identity. The Directive Principles impose a constitutional obligation on the state to build a welfare society that meets the basic needs of citizens, reduces inequalities, and protects the vulnerable sections of society. The idea that all welfare is a threat to work ignores the constitutional commitment to welfare and dissolves the distinction between minimal welfare and unconditioned income for all. A poor widow receiving a minimal pension or a landless labourer receiving temporary income support during a drought year is not “choosing leisure over work”; she is making a right to basic security in a world where labour markets cannot guarantee her survival. The question is not whether welfare or work is the answer; it is how to design welfare so it does not undermine work.

Lastly, the assumption that “cash transfers discourage work” is often predicated on an overly stylised relationship between income support and work. The impact of money on work depends on whether it is large or small, temporary or permanent, targeted or universal, whether it is given to youth, mothers, or the elderly, how it interacts with local labour markets, and on what

other policies it is bundled with. For some individuals, a small amount of money may reduce work effort, while for others it may enhance their capacity to seek, keep, or improve work. For yet others, such as children, the very old, and those with severe disabilities, less work is actually a social goal. The assumption that money “makes people lazy” is an oversimplification that misses the point of the policy design questions that this essay is attempting to raise.

At bottom, the question is no longer whether cash transfers by their very nature undermine work, but how best to design a welfare system that strikes an appropriate balance between fiscal discipline, gainful employment, and social justice. A rationalisation of welfare spending—eliminating overlapping schemes, improving targeting where necessary, and safeguarding existing schemes that touch the bottom of the pyramid—can actually help the state manage deficits without compromising its constitutional obligation to a humane social order. Simultaneously, employment policy must be geared towards raising the supply of decent work to an appropriate level, so that welfare spending acts as a safety net and a launch pad, rather than a long-term replacement for work. Programmable currencies, which are on the horizon, could be an important tool to balance freedom and constraint by allowing welfare transfers to be “pre-programmed” to avoid certain categories of “sin goods,” without falling into the paternalism of coupon schemes. The challenge for policymakers is to rise above sloganeering about “the lazy rich” and “entitlement culture,” and to continually calibrate welfare spending to balance social justice, growth, and work.