The fear Tax behind India’s cash transfer escalation

In ‘rational abdication’, we have found why good officer don’t try hard for outcome. Blame it on the system - visible failure is more reliably punished than invisible inaction.

On February 19, the Chief Justice of India, heading a three-judge bench of the Supreme Court, observed that states are running into deficit while continuing to distribute freebies, called the trend disturbing, and warned that the nation’s economic development would be hampered by this kind of largesse. The matter — a petition against pre-election cash transfers, pending since 2022 — is expected to be heard again this month. Assembly elections have since been announced in Tamil Nadu, West Bengal, Kerala, Assam, and Puducherry. The Model Code of Conduct is in force. And the question the bench left open — why do governments keep doing this? — remains open.

The usual explanation is that parties offer cash transfers to secure votes, and the usual critique is that states cannot afford to keep offering them. Both observations are accurate as far as they go, which is not very far at all. They describe the transaction from one side of the counter — the side that writes the cheque — without asking what is happening on the other side, where the citizen who accepts the transfer is making a calculation of her own. That calculation is not passive. It is not gratitude, and it is not gullibility. It is the political engagement of a person who has spent five years dealing with the state and has arrived at a precise, experience-based assessment of what she received and what she was owed.

To understand that assessment, you have to begin where the citizen begins — not at the election booth but at the government window. The woman who needs her ration card corrected, the farmer whose land record requires updating, the young man whose business licence application has been pending for four months, the pensioner whose file has moved between three offices and is, in each of them, awaiting a decision that no one is willing to take. Each of them has a legitimate claim on the state. Each of them is experiencing something that has no name in governance literature and therefore no solution in governance practice. They are paying what might be called the Fear Tax.

The Fear Tax is not a bribe. No money changes hands. There is no demand, no receipt, no transaction. It is the invisible cost of dealing with a state that is institutionally present but substantively disengaged — the cost in time, lost income, foregone rights, and unresolved entitlements of interacting with a system that is technically processing a file while systematically avoiding a decision on it. It accumulates silently across the years of a government’s term, appearing in no budget, measured by no ministry, but felt in every queue in every district of every state.

It accumulates because the officer across the counter is operating within an incentive structure that makes non-decision the rational choice. He is, in many cases, neither corrupt nor incompetent. He can see what the file requires and has the authority to decide it. What he also sees, correctly, is that deciding carries a professional risk he is not required to take. If he decides and is later found wrong, there will be an inquiry. If he does not decide — if he sends the file upward, requests one more document, refers the matter to a committee, or lets the clock run out — nothing happens to him. The system punishes the visible wrong decision and rewards the invisible non-decision. So the capable officer engages at the minimum level that keeps the process alive without taking the risk of genuinely resolving it. Referral, deferral, minimum skin in the game.

This behaviour — call it Rational Abdication — is the third and least acknowledged driver of governance failure alongside corruption and incompetence. Its cost is the Fear Tax. And unlike corruption, which at least delivers a service at an inflated price, Rational Abdication delivers procedure without outcome. The file moves. The citizen does not.

By the time an election approaches, the Fear Tax has compounded into something the citizen feels viscerally even if she cannot name it analytically. She knows the gap between what was promised and what she received. She knows the queue that resolved nothing, the document that required another document, the grievance portal that generated a reference number and no resolution. She does not call it the Fear Tax. She says: this government has not delivered. And when the next government, or the same government seeking re-election, offers a cash transfer, she does not receive it as charity. She receives it as a partial settlement on an account she has been running in her head for five years — an account of services delayed, entitlements unresolved, and time that was taken from her and never returned.

This is political engagement in its most concrete and consequential form. The citizen is using the only instrument the democratic calendar gives her — the period before an election when parties are responsive to her needs in a way the permanent bureaucracy has not been — to extract what the permanent bureaucracy failed to provide during its term. When Madhya Pradesh credited Rs 1,250 monthly to 1.25 crore women for eight months before the 2023 election, and those women voted as a bloc that transcended caste and community loyalties, they were not being purchased. They were responding to a government that had, however belatedly, acknowledged a debt. When Bihar credited Rs 10,000 to women voters before the 2025 assembly polls, and Delhi saw rival formations bid Rs 2,100 against Rs 2,500 per month, citizens were setting the price of a settlement that the formal machinery of governance had failed to deliver on its own terms.

The numbers confirm that this is a debt dynamic rather than a simple transaction. State subsidies have surged two and a half times since 2018–19, crossing Rs 4.7 lakh crore. Outstanding state liabilities stand at 28.5 percent of GDP against a prudential ceiling of twenty percent. If the cash transfer were a stable political transaction — a fixed price for a fixed outcome — it would stabilise at the level required to produce the desired result. It is not stabilising. The escalation is the signature of a compounding debt: the longer the Fear Tax accumulates without being addressed at source, the higher the settlement the citizen demands when the electoral window opens, and the more every party seeking power must bid to meet that demand. The citizen is not being outbid. She is raising her price, because the underlying invoice has grown.

Tamil Nadu, which votes on April 23, is the state where this cycle is oldest and most legible — colour televisions in 2006, mixers and grinders in 2011, cash transfers today. The Supreme Court examined Tamil Nadu’s freebie practices in 2013 and did not prohibit them. Over a decade later, the Court is back before the same phenomenon, now scaled nationally across five states going to the polls simultaneously. The Chief Justice’s question — is it not high time for states to revisit these policy frameworks? — is exactly the right question. But the answer it requires is not about capping the transfer or regulating the manifesto. It is about reforming the machine that makes the transfer the citizen’s only available mechanism for collecting on what the state owes her.

That machine runs on Rational Abdication. Change the officer’s calculation — make it professionally safer to engage genuinely with the citizen’s need than to abdicate procedurally, distinguish between the file that was correctly closed and the grievance that was actually resolved, build a performance architecture that measures delivery rather than process compliance — and the Fear Tax begins to fall. As it falls, the citizen’s unresolved account falls with it. As the account falls, the settlement she demands at the next election begins to moderate, because she has less to collect on. The solution is not electoral regulation. It is institutional reform — a different signal from the top of the administrative hierarchy that serving the citizen and filing clean are not the same achievement, and that only the first one counts.

Until that signal is sent, the Fear Tax will keep accumulating. The citizen will keep arriving at the election with a longer invoice and a higher price. And every party that wants her vote will keep bidding to meet it, because the citizen is not confused about what she is owed. She has been keeping the account for five years, at every counter in every district, and the election is the only window in which anyone is willing to pay.

The machine that generates the invoice has never been named. It has one now.

(O.P. Singh is a former Director General of Police, Haryana, and the author of Fear Tax: When Caution Costs More Than Corruption.)