India, Aug. 31 -- As states commit ever larger sums to recurring transfers, a more difficult question is emerging: what happens to the long-term investments that build human capability and public capacity? The debate must move beyond the simplistic contest between welfare and "freebies" to examine whether today's cash transfers are coming at the cost of tomorrow's schools, hospitals and infrastructure.

The argument over welfare in India is still framed as a morality play: cash transfers are either social justice or "freebies". That binary misses the harder public-policy question. The issue is not whether states should put money directly into citizens' hands. It is whether recurring transfers are beginning to compete with the schools, hea...