RBI flags risks of expanding DBTs as Telangana’s subsidy bill rises

With subsidy expenditure steadily expanding, Telangana faces growing fiscal pressures that could limit its ability to invest adequately in critical sectors such as health and education, according to a recent Reserve Bank of India (RBI) study.

In the current fiscal year, the State government allocated ₹16,583 crore for subsidies, primarily for free power to the farm sector, of which ₹10,627 crore had been spent till the end of December. Similarly, against an allocation of ₹13,109 crore for pensions, the actual expenditure has already exceeded estimates, reaching ₹14,126 crore during the same period. The Congress government’s promise of an allowance to unemployed youth, however, is yet to be implemented.

The RBI study has cautioned State governments against increasing emphasis on direct benefit transfers (DBTs), including a surge in cash transfers, warning that if not managed carefully, they could constrain the ability of States to adequately fund demographically sensitive sectors like health and education.

The study, State Finances: A Study of Budgets, underscored the need for impact assessments of the welfare schemes to evaluate their effectiveness in achieving the intended outcomes. It expressed concern that the share of social security and welfare expenditure — encompassing spending on women, children, the elderly and persons with disabilities — has risen for all cohorts with ageing States like Kerala and Tamil Nadu devoting the highest share, at around 18%, to such expenditure.

According to the RBI, this increase is largely driven by the expansion of DBTs, which have become a structural component of State budgets, driven by broad-based policy imperatives rather than demographic pressures alone. Several States introduced measures in their 2025-26 budgets, including farm loan waivers, free electricity for agriculture and households, subsidised transport, unemployment allowances and direct cash transfers to women. 

While acknowledging that social welfare programmes are essential since economic disparities remain stark, the study warned that rising welfare expenditures run the risk of crowding out critical investments in physical and social infrastructure.