Reshaping social protection in India

Move from the traditional system, based on growth vs equity trade-offs, into a modern system that both promotes growth and reduces poverty

India’s traditional social protection is not in line with one of the fastest growing economies in the world. India’s social protection system was founded in the 1970s, when half of the population was chronically poor, the country suffered from aggregate food deficit, infrastructure had minimal rural penetration, technologies available for programme administration were rudimentary, and only around a fifth of the population lived in urban areas.

The country has undergone a sea-change in the last three decades, becoming the fastest urbanising country in the world, and the fastest growing major economy in the world. Its social protection system needs to be reshaped to match this fast pace of change and the expectations of people.

The social protection system is not yet ready to tackle the needs of a highly mobile population, and a large group of people that is likely to continue to grow as economic growth and urbanisation accelerate. It is time to reflect on where it is headed in the coming decade and reform it so that it can cope better with the new and emerging trends in poverty, inequality, and vulnerability in India.

Although India has reduced poverty, new sources of poverty and vulnerability have emerged. The share of rural poor has reduced, but the share of urban poor has increased. Unfortunately, the current social protection priorities remain heavily focused on reducing poverty in the rural areas and ignores the urban areas. Urban poverty is a rising concern due to the combination of a fast pace of urbanisation and slower rates of urban poverty decline.  

India needs second-generation social protection instruments to deal with economic modernisation and the new risks and vulnerabilities it brings. The urban poor work in the unorganised sector in cities, without social protection, and face a greater risk of falling into poverty. Insurance-based interventions remain in their infancy in terms of coverage in the unorganised sector. Despite attempts to introduce new programmes for unorganised sector workers, insurance against life’s major shocks such as health, old age, disability, and death has not been available to the vast majority of the population.

Programmes to reduce urban poverty should take a three-pronged approach: a) enhancement of productive employment and income for the poor; b) improvement in general health and welfare services; and c) improvement in infrastructure and the built environment for urban poor neighbourhoods. Insurance and pension programmes need to be developed. 

While India spends significant resources -- close to 4 per cent of GDP -- on its core safety net programmes, the return on spending in terms of poverty reduction has been low. Lack of coordination and overlap in delivery of programmes (both within and across levels of government) adds to reduced impact of social programmes on poverty. Lack of financial and human resource capacity at the Block and Gram Panchayat levels worsens the challenge of service delivery.

India needs a new social contract. Modernising social protection can help make social assistance more adaptable and resilient. India’s economic growth and the pandemic have changed the needs of its social protection system and risk groups. Social protection systems can help protect the most vulnerable from economic shocks. Social safety nets and social insurance schemes can reduce inequality and poverty by providing income support and consumption smoothing. 

The goals of social protection and social policies are to guarantee that the poor have a minimally acceptable standard of living and to prepare them for a constructive role in economic, social, and political life. 

A “one size fits all” programme will not work well with the growing spatial diversity in living standard and poverty within India. Institutional and absorptive capacity vary a great deal at the sub-state level and at the household/delivery level that are institutionally handicapped by misidentification of beneficiaries, and implementation problems that reduce their poverty reduction impact. 

The number of social protection programmes need to be reduced, as India has too many of these schemes – there are nearly 440 schemes under direct benefit transfer at present. A strategy on how these different schemes can be consolidated in a way that preserves fiscal balance is urgently needed. The solution to a fragmented 440-scheme system cannot be to add a new income transfer scheme without consolidating other programmes. Programmes such as the PDS, MGNREGS and RSBY could serve as the “three pillars”. Beyond the three “pillars”, states could receive an additional transfer and implement state-specific programmes.

India is a rapidly developing middle-income country now, and there is a huge potential for using public private partnerships (PPP) to maximise finance for social safety nets. ‘Build and operate’ is increasingly common in social infrastructure programmes. Healthcare facilities, prisons, and public housing can be constructed under PPPs. The PPP model can also stretch into the operation of the facilities, which enables the private sector in charge not just to construct social infrastructure but also to operate the services afterwards, encouraging operational innovation. It forces the private sector to take a long-term view of the project and transfers operational risks from the State to the private partner. PPPs broaden the pool of potential private investors that maximises finance for social protection. 

India’s social protection system needs to modernise to serve the risks and needs emerging from the Covid-19 pandemic, rapid urbanisation, structural transformations in the labour market, and climate change. There is a need to deepen the ongoing policy reorientation of the social protection system to meet the changing and increasingly diverse needs of its population; increase the emphasis on preventive programmes and social insurance instrument, and shift away from loan waivers and administratively-driven subsidised credit to public financing of a more diverse range of livelihood promotion approaches better suited to the labour market conditions; moving to more consolidated and more
cash-based social assistance programmes for the chronically poor, and addressing the neglect of urban social protection policy. 

If the social protection system is modernised, the benefits for the poor could be substantial, creating more jobs and making growth significantly more inclusive. 

(The writer is a senior fellow at the Pune International Centre. He has 
formerly worked with the United Nations and World Bank)