India’s Economic Development and Social Safety Nets

Abstract

Food transfers, employment generation through public works programs, supplemental nutritional assistance to pregnant mother and infant children, old age pensions, and school meals are among the major social safety nets that constitute India’s social welfare architecture. In this chapter, we review these schemes along with some of the newer programs and their performance in the light of India’s developmental trajectory over the past seven decades. We argue that to facilitate a resilient development process in the future, these programs must be attuned to the changing economic and demographic transformation of the economy.

Introduction

The debate around India’s social policies has largely centered around two competing ideological narratives.¹ One side of the debate pushes forward the idea that market reforms and economic growth is the principal antidote to poverty, while the other side rallies about the role of state driven public investments in human development as central to sustaining a virtuous cycle of growth. The former group, therefore, blames historically stunted growth rates on state-sponsored protectionist economic policies in place until the 1980s. They claim that the embrace of market-oriented reforms, beginning 1991, unshackled India’s economic development from state control and put it on the path of prosperity. Those on the other side of debate call for greater state intervention to promote human development, highlighting the limited impact of market-driven growth on human development, inequality, social mobility, and undernutrition. Development policy debates in India, including social welfare policies, therefore, are highly polarized, and often the policy instrument depends upon the political ideology of the government in power.

The dissonance between human development and growth is clearly evident when comparing India with other countries (Fig. 3.1). India is home to 28% of world’s poor population—the second largest number of poor households in the world. On the Human Development Index (HDI), India is ranked 129, much lower than many countries with an equal level of per capita income. On a recent metric for human capital, the Human Capital Index (HCI), the World Bank ranked India 115 among 157 countries, where it scored lower than most of its neighbors in South Asia, including Bangladesh, Sri Lanka, Myanmar, and Nepal.

Fig. 3.1

(Source World Bank WDI | UNDP HDR 2017)

Association between human development and per capita GDP in 2017

As Indian economic prospects are glorified for giving competition to China, in terms of growth numbers, its human development indicators, most notably nutrition, resemble that of sub-Saharan Africa. The rapid expansion in primary schooling, leading to universal school enrollment, has not contributed much to child learning outcomes. Surplus food production has ensured that food stocks are plentiful, yet the specter of nutritional security poses a major threat. With the success story for every million capitalists emerging, there must be sordid tales of hundreds of millions of poor living in squalor and somehow trying to eke out a living without access to adequate health care, credit, or basic infrastructure. It is in this context that some of the leading scholars in India refer to as “islands of California within Sub-Saharan Africa,” or a hybrid of a rupee–dollar economy.² The debate, therefore, on whether India is an emerging giant in global economy, or whether its recognition as an economic power, an uncertain glory, depends a lot on whether the growth is sustainable and distributed equitably. This is where a robust social protection program can contribute building resilience through ensuring a more equitable redistribution of the fruits of growth.

An array of social welfare programs with varying form, focus, and scope characterizes India’s social policy toward addressing some of the fundamental issues of underdevelopment such as poverty, nutrition, or health (see Table 3.1). Through provisions of basic human needs in the form of food, cash, employment, or other forms of subsidy, these social welfare programs work with the scope of maintaining minimum level of household consumption, preventing hunger, and reducing poverty. Recognizing that poor are most likely to be vulnerable—deficient in terms of food access, nutritional inputs, income, or livelihood opportunities—they remain the primary focus or the intended beneficiaries of these programs. These transfers could also promote further acquisition of human and physical capital through guarding against various risks and vulnerabilities across the life cycle which could imbue household resilience and have a transformational impact. A transformational safety net system therefore not only transforms human lives by reducing deprivation and raising human functioning, but also has the potential of engendering a virtuous cycle of economic growth, which is inclusive and leaves no one behind.

Table 3.1 Major social safety net programs in India

Promising as it may sound, the impacts of social safety net programs remain hotly contested, even while its importance in social policy and overall expenditure on social welfare programs has gained eminence in the last two decades. These programs are beset with a host of design and implementation issues which limit their effectiveness in facilitating development resilience. Nevertheless, social welfare programs have been a key tool in keeping people away from abject poverty through basic life provisions, despite their limited transformational impact.

In this chapter, we review the changing historical landscape of social welfare policies in India with respect to the country’s developmental trajectory. Reflecting upon the evolution of social policy allows us to highlight the importance of designing policies with respect to the economic structure of the country. We highlight the key aspects of India’s structural transformation policy which creates the need for more inclusive and expansive social protection ‘system’ for a resilient development process.

Economic Growth, Poverty, and Developmental Challenges

To understand how economic growth has not led to a commensurate decline in poverty and human development, it is useful to begin with an overview of India’s development trajectory.³ India followed a planning model to economic development wherein the government would come up with its policy priorities for every five years. The 5-year plans, as they were called began in 1951 and followed the ideals of Fabian socialism of the erstwhile Soviet Union type. As a result, the planning process adopted a closed economy model wherein the state-controlled industries were primed as the engines of growth. As part of state policy, important sectors were reserved only for public sector enterprises. The initial impetus was to promote industrial development as an engine of economic growth, despite India being a largely rural country. The focus, however, shifted toward agriculture with the demise of India’s first Prime Minister Nehru—who championed the cause of 5-year plans and state-controlled industrialization—in 1964. During this time, famines and hunger were common occurrences and India had to rely on import of food grains from abroad for domestic consumption. During the tenure of Nehru’s successor, Lal Bahadur Shastri, however, there was a shift toward the agriculture sector not only as a source of food but also a source of economic development. This shift coincided with agricultural productivity growth because of the Green Revolution, which led to increase in farm income and decline in poverty.⁴ But these benefits were regionally concentrated, and as a result the overall income growth continued to grow at a slow rate.⁵

During the first three decade of India’s planning process, per capita income in the country remained low but stable with agriculture being the major contributor to overall GDP (Panels A-B, Fig. 3.2). Poverty levels, as measured by consumption expenditure, in India when it was largely rural, remained consistently high from the early 1950s until the mid-1970s (Ravallion and Datt 1996). In 1973–74, almost half of the population was classified as poor—in both rural and urban areas (Panel C, Fig. 3.2). Acceleration in the growth process began in the 1980s on the back of rural productivity increase led by technological improvements, irrigation facilities, and expansion in the rural credit infrastructure leading to greater household savings.⁶ Greater savings with banks not only meant that they could lend to households but also to corporations, which helped promote greater private investments in manufacturing and machinery, adding to the growth process.

Fig. 3.2

(Source World Development Indicators, World Bank, the World Inequality Database, WID.world, and the United Nations University-World Institute of Development Economics [UNU-WIDER] database)

Economic development and poverty in India

The year 1991 was a watershed moment when India had to open up its borders to international trade which marked an “attitudinal shift” of the government away from the stringent regulation of domestic private trade and various to imports (Rodrik and Subramanian 2005).⁷ From a closed economy relying on import substitution and state-driven industrialization—which also hindered domestic entrepreneurship, and inhibited competition—often conveyed through the aphorism “license–permit–quota raj”—economic reforms introduced the forces of globalization and international trade competition to the domestic markets. The era of globalization led to a significant increase in economic opportunities, reduced poverty, and brought about an increase in the quality of life. Share of Indian classified as poor declined to 13.7% and 25.7% in urban and rural areas respectively in 2011–12 (Panel C, Fig. 3.2). India’s subsequent stable growth has been heralded as a major global success—with the sobriquet, Shining India—of engineering growth through an embrace of market-oriented reforms.

The post-reform economic growth has been characterized by a decline in the share of output from agricultural in GDP which has been compensated service sector led growth process in which the industrial sector’s share in total output has remained stagnant (Panel A, Fig. 3.2). Yet, despite the decline in the share of sectoral output from agriculture, it continues to employ the greatest number of people in the workforce, while services employ the lowest share of the labor force. For the 18% of the gross domestic product (GDP) that the agriculture sector contributes to, it employs 42% of the labor engaged in any form of productive work (Panel B, Fig. 3.2). This is where India’s development trajectory has veered away from the classical theory of structural transformation—while the share of agriculture in the total output has declined with increase in per-capita income during the last seven decades, its share of labor force has not shown a commensurate decrease. As a result, the economy’s transition from unskilled agricultural labor to labor-intensive manufacturing sector or skill-intensive service sector employment is considered ‘stunted.’⁸ It is important to note that while the agricultural productivity-led growth in the pre-reform era not only lowered poverty levels but also reduced inequality by raising the welfare of the poorest of the poor, not only those close to the poverty line (Panel D, Fig. 3.2). However, since the opening of the economy in 1991, the decline in rural poverty has been driven by urban consumption growth, in contrast to the earlier period.⁹ As a result, there has been a widening of interpersonal inequality, posing a threat to future growth prospects.¹⁰ Fruits of economic growth in the post-liberalization era have been largely limited to those with access to high quality education, social networks, and sufficient physical capital in the top 10% of the income bracket.¹¹ Rising inequality remained a feature of both urban and rural sectors. In the urban areas, wages became more unequal with a greater demand for skilled labor as industrial technology improved, and hence, a higher wage premium to the few but skilled workers.¹² Rural inequality, on the other hand, is mainly attributed to differential land endowments, which has increased subsequently with land fragmentation and greater pressure on land.¹³

This inequality is reflected in the division of workers into two broad classes differentiated by the possession of education and skill—a tiny proportion of white-collar formal sector employees while a majority share is either employed as blue-collar unskilled workers or is engaged in farming.¹⁴ Across these two sections of the workforce, there is a stark difference not only in income but also security of livelihoods and access to social security. While the formal sector employees benefit from secured monthly pay checks and other associated health and pension benefits from their employer, rest of the workers are devoid of any employment security, regularized salary structure, or any form of employer-based social protection in times of distress. Even among farmers, around 90% of them are smallholders who try to eke out a living at close to minimum wage.

Put simply, adverse circumstances are likely to be a less consequential for the high-skill formal sector worker and large land holders, while they could be debilitating for the poorer. The significance of this disadvantage is likely to persist in future income and opportunities with grave implications for intergenerational mobility, pathways out of the poverty trap, and for the engendering of development resilience. One must note that the vulnerable groups constitute most of Indian citizens. The role of social protection policies therefore becomes important in ensuring that those who are left behind in the market-based growth process are supported through various forms of interventions, allowing them to overcome their deficiencies through a more equitable, fair, and inclusive growth process.¹⁵

India’s Social Welfare Regime: Form, Focus, and Scope

The importance of social welfare scheme in India has been recognized only in the last two decades. Prior to that, there were very few programs which sought to address the scale of deprivation prevalent in the country. While widespread hunger and anti-poverty policies occupied the political rhetoric, state action was lackadaisical reflecting a “monumental neglect of social inequalities and deprivation in public policy’’ (Drèze and Sen 2002, p. xv). Whatever little episodes of state action which emanated to address poverty and deprivation arose out of the exigencies of famine-like conditions, rather than a concerted planning around how to overcome large-scale poverty and improve human development outcomes. The narrative around social safety nets is therefore punctuated with numerous historical events which overlapped with the economic and political imperatives of the times (sketched out in Fig. 3.3) thereby determining its form, focus, and scope—the three concepts which we introduced in the previous chapter.

Fig. 3.3

(Source Author’s representation)

Evolution of India’s social safety nets—form, focus, and scope

Hunger Mitigation as the Scope of Poverty Reduction

Specter of hunger and famine has traditionally loomed largely over India’s social policy which implies that the focus and scope of social welfare policies have largely been around rural population and food security, respectively. The year 1943, synonymous with the abominable famine in Bengal, was a watershed moment. Bengal famine of 1943 brought to light the sheer mismanagement of resources during the colonial rule, which led to massive starvation despite sufficient food supplies.¹⁶ The massive humanitarian loss induced by the famine, and particularly, its man-made nature insinuated many of the nationalist leaders no less. Elimination of hunger, therefore, emerged as a national imperative, which continues to be the logic of the food policy to date. Early 1940s also coincided with the introduction of food rations in urban areas for the industrial workers as an emergency response during the Second World War period, which provisioned universal transfer of essential items—food grains, kerosene, and sugar—at subsidized rates. Rations continued to be a part of public policy in India, even after its independence from colonial rule in 1947, under the name of the Public Distribution System (PDS).

Frequent episodes of hunger and famines across the country built up the Malthusian fear and therefore the preoccupation with ensuring people had enough to eat. It intensified during the 1960s, when Bihar and Maharashtra—two big states—faced conditions of famine. The drought of 1966–67 was felt, in fact, across the country, and the Malthusian pessimism around hunger was felt widely.¹⁷ In the wake of such misery, Maharashtra, suffering from three consecutive spells of drought from 1970–71 to 1972–73, introduced a public works program, known as Employment Guarantee Scheme (EGS)—an unconditional promise of employment to anyone who wished to join the public works program—which acted as an important insurance against famine-induced starvation, mortality, and undernutrition to around 5 million people.¹⁸ One must note that the scope of EGS was restricted, however, to providing relief in the wake of droughts. State action through EGS was aimed at reducing rural income loss in the wake of poor rainfalls.

Self-sufficiency in domestic food production with the advent of Green Revolution meant India was able to solve its food availability problem and the emphasis moved on to the issue of food access.¹⁹ Household access to food however continued to remain an issue because of lower purchasing power for a large share of the population. The policy of ‘grow more food’ was therefore utilized as a tool to expand the focus of PDS from urban to rural areas, leading to massive expansion of the retail outlets (known as fair price shops, FPS) in the hinterland.²⁰ Food transfers through PDS became the dominant form of social protection in the country, with food consumption support and hunger removal as the primary policy scope.²¹ PDS, despite being the only active safety net during that time, was beset with operational problems and political economy challenges which we would discuss later in the book.²²

The scope of anti-poverty policies as food and hunger mitigation policies got further entrenched in the social policy when the official poverty line was anchored in the notion of a ‘minimum calorie requirement’ essential to maintain a healthy living.²³ Subsequently, to cut down upon the mounting fiscal deficits, the government restricted the focus of PDS to the “identified poor.” In 1997, means-tested ‘pro-poor’ targeting was introduced for the first time in the country, classifying households into below poverty line (BPL) and above poverty line (APL). PDS had been beset with problems—inefficiencies in targeting, pilferage, leakages, and rampant corruption—which escalated its operational costs.²⁴ The Government of India, as it adopted the open market policy in 1991, began to find ways to prune fiscal expenses, and therefore, resorted to targeting benefits toward the poorer regions in 1994, and then, only for the poor in 1997. While this was done mainly for the PDS, as it was the only national-level active social welfare scheme at that time, the APL/BPL distinction continues to be a feature of most other schemes now.

Social Pensions to the Vulnerable

Article 41 of the Indian constitution suggests provisions for public assistance to its citizens—within the limits of economic capacity—in case of ‘unemployment, old age, sickness and disablement and in other cases of undeserved want’ within the limit of its economic capacity and development.’ It took more than four decades for the Indian social policy to recognize this with the introduction of National Social Assistance Programme (NSAP) in 1995. It took some more years before NSAP could be scaled up further.

With the scope of supporting the vulnerable elderly and disabled population whose income-earning capacities are limited, NSAP focused on the elderly, widows, and disabled in the form monthly pensions to ensure that they can “live with dignity.” NSAP is comprised of the following schemes: Indira Gandhi National Old Age Pension Scheme (IGNOAPS), Indira Gandhi National Widow Pension Scheme (IGNWPS), Indira Gandhi National Disability Pension Scheme (IGNDPS), National Family Benefit Scheme (NFBS), and the Annapurna. Under IGNOAPS, a monthly stipend of Rs. 200 (approximately US$3) is provided to the poor above 60 to 79 years of age and Rs. 500 (~US$5) for those 80 years and older. For widows between 40 and 59 years of age, a monthly pension of Rs. 200 (~US$3) is allotted, provided they belong to households that fall under the BPL category. The same monthly pension is allotted for the poor who have serious or multiple disabilities. For every death of the primary breadwinner falling between 18 and 64 years, the households is entitled to a lump sum of Rs. 10,000 (~US$150) under the NFBS. Under the Annapurna scheme, 10 kg of food grains every month are provided free to senior citizens who are although eligible for, remain uncovered under NOAPS. Funded by the central government, implementation of NSAP lies with the states with the latter responsible for identifying beneficiaries and discretion on adding to the benefits levels. Several state governments have therefore expanded upon the focus of the scheme by supplementing IGNOAPS with their own budgets.

Rights-Based Social Welfare Legislation

Despite food self-sufficiency and reduction in poverty rates, scarcity and hunger persisted in the 1990s, with little succor to the vulnerable in the form of safety nets. Despite overflowing food stocks, as procurements of rice and wheat from the farmers at assured prices continued, starvation-related deaths were not unheard of.²⁵ It was a classic case of what Amartya Sen theorized as “entitlement failure”—lack of access to food despite its availability.²⁶

A crucial moment in India’s social welfare policy came about in early 2001, when severe droughts induced starvation deaths in seven districts of the country. The People’s Union for Civil Liberties (PUCL), a human rights organization, following these death reports, took the Government of India to court, and in its writ petition, called out the insensitivity of the government—how can a country with overflowing stocks of food grains not stop starvation-related deaths? The petition made an appeal to the court to allow the grains to be distributed through the various statutory food and nutrition programs, which are present only in policy documents. In the wake of this case (PUCL v. Union of India and Others, Writ Petition [Civil] 196 of 2001), famously known as the “right to food case,” the Supreme Court of India ordered food to be distributed to every child in the government schools through the Mid-day Meal Scheme (MDMS) and to infants and mothers through the Integrated Child Development Scheme (ICDS). This case, arguably ushered in recent reforms and expansion of India’s social welfare programs (Drèze 2017).

The PUCL case was central to the revival of the moribund ICDS and MDMS, primarily targeted at child nutrition. The focus on child welfare had germinated earlier in 1974, as part of the National Policy for Children. ICDS was subsequently introduced in 1975, as a pilot program in a few districts by the Ministry of Women and Child Development. The scope of ICDS was to reduce the incidence of mortality, morbidity, and malnutrition, through providing health and nutritional requirements to mothers and children under the age of six years. The pilot program, however, was retracted in 1978, only to be reintroduced later. MDMS, on the other hand, provides free, hot-cooked meals during school hours for children, introduced in some regions as part of the expansion of primary schooling infrastructure under the National Programme of Nutritional Support to Primary Education (NP–NSPE) in 1995 to promote school enrollment and address “classroom hunger.” Both MDMS and ICDS got a fresh lease on life after the Supreme Court directed those reserved stocks of food grains should be used to feed poor children, under these programs, in response to the PUCL case. ICDS and MDMS, therefore, not only expanded their geographic focus, but also expanded in scope to address more than calorie supplementation. MDMS also benefited from greater school enrollment as the Right to Education (RTE), which was passed by the Parliament in 2009, allowed for “free and compulsory” school education for every child between 6 and14 years of age. Recognizing the need to address intergenerational poverty—emanating through undernutrition in early life—the scope of social policy expanded from hunger to nutrition, with an added focus on mother and children.

Food-focused social welfare programs achieved constitutional legitimacy in 2013, when “right to food” was legislated in the Parliament as the National Food Security Act (NFSA). Under the NGSA, government ought to “provide for food and nutritional security in human life cycle approach, by ensuring access to adequate quantity of quality food at affordable prices to people to live a life with dignity and for matters connected therewith or incidental thereto” (Government of India 2013, p. 1). NFSA, therefore became an umbrella legislation, subsuming various aspects of food and nutritional schemes, with a “life-cycle approach.” Under the NFSA, 50 and 75% of the urban and rural poor, respectively, were considered as “priority” households, thereby expanding the narrow focus from only on the poor. It is important to mention that the explicit focus on the life-cycle approach, rather than the erstwhile food provisions, expanded the scope of public policy to nutritional requirements specific to age—from pregnant woman to the elderly and destitute. The life-cycle approach, ingrained in the NFSA, incorporated specific roles for women, such as ration cards in their names; additional take-home rations for pregnant women; nutritional, health and education support to adolescent girls; and separate provisions for elderly, disabled, and single women.²⁷

Income Support Through Public Works Program

The right to food legislation followed the “right to work” legislation, which was enshrined in the Constitution under the name of National Rural Employment Guarantee Act (NREGA) in 2005. NREGA, later rechristened as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), drew its inspiration from the Maharashtra EGS. The primary scope of MGNREGS is to provide income support to rural workers, with the added advantage of using the labor to generate and improve rural infrastructure. Under the program, any individual above the age of 18 years could enroll and seek a job card with the local government, guaranteeing 100 days of wage payment in a year, regardless of whether the work is available or not.²⁸ MGNREGA has a special provision for women, who are underrepresented in employment and are often paid lower wages for equivalent work. Under the MGNREGA, wages are equal for men and women. There is a special provision for childcare facilities at the place of work, so that women can participate in greater numbers. Public assets, as created through the MGNREGA, further add to the rural economic development. Social safety nets in the form of MGNREGA, therefore, not only aim to expand the focus of livelihood opportunities to everyone in rural areas, but also tries to facilitate greater participation of women in the labor force, creating rural infrastructure (wells, watershed, roads, etc.) that are part of the major scope for increasing development resilience in the country.

From Symptoms of Poverty to Its Causes: Recognizing Health Shocks

In 2008, the Government of India launched a new welfare scheme, Rashtriya Swasthya Bima Yojana (RSBY), under which all the BPL households would be covered with a health insurance of Rs. 5 lakhs (~7000 USD), with the government paying the significant share of the insurance premium. In 2018, RSBY was subsumed under the larger scope of the Ayushman Bharat (Healthy India), as the National Health Protection Scheme (NHPS) aimed to cover almost half of the population, expanding upon the focus, which was restricted to the BPL households under the RSBY. Expansion of the scope of safety nets to health has been a gradual progress beginning with the National Rural Health Mission (NRHM) in 2005. In 2013, the National Urban Health Mission (NUHM) was launched as a part of the overarching National Health Mission (NHM), which also incorporated the NRHM within it. NHM aims to expand the supply of public health infrastructure, especially in remote rural areas. It also included Janani Suraksha Yojana (JSY), a safe motherhood intervention, to encourage institutional child delivery, with the scope of reducing maternal and neonatal mortality. JSY involves cash payments and delivery and post-delivery care for the mother and her newborn child.

Publicly subsidized health insurance as a novel form of social welfare program in the country has been especially welcome as health shocks are globally considered to be a major cause of slide into poverty.²⁹ The emerging focus on ‘causes’ of poverty, rather than its symptoms expands the scope of social policy toward improved health marks a welcome departure from traditional in-kind welfare payments focused on the rural poor. Publicly subsidized health insurance is included in the demand-side aspect of social protection rather than the supply-driven public health infrastructure. This form of social protection allows vulnerable people to an option to seek health care in private hospitals if they like.

Development resilience requires a broader range of social programs. The expansion of focus from poverty, hunger, and nutrition toward health as a “social minimum,” therefore, is a much a desired one. One notes that restricting subsidized health insurance to only the poor is likely to ensure errors of exclusion and limit its effectiveness, but at least it breaks away from policy stasis, which considers poverty to be synonymous with living in rural areas and driven by bad weather. As India is urbanizing, with greater reliance on wage-based employment, the likelihood of poverty would increasingly be based upon adverse health shocks and the ability to counter it, even within well-nourished and non-poor households.

Toying with the Idea of Cash Transfers

Introduced in one of the economic surveys in recent years, cash transfers in the form of a “basic income” are now being considered as an idea that is worth debating in order to reframe the social protection architecture.³⁰ Cash transfers seem to improve economic efficiency, not only by avoiding intermediaries, which often siphon off the resources, but also providing people with the choice of items they would like to consume. Providing the deserving beneficiaries with cash transfers, however, requires a robust delivery system architecture, which involves identification of beneficiaries, tracking them over time, fixing an inflation-indexed amount, and ensuring beneficiaries receive timely payments. The Government of India seeks to leverage its financial inclusion project under the Jan Dhan Yojana, enrollment for the unique biometric identity card called Aadhaar, and near universal penetration of (M)obile technology, often referred to as the “JAM” trinity to roll out payments.

While it has not yet been fully implemented, the idea is to use the JAM infrastructure to create a database of beneficiaries and provide them with benefits without risk of the recipients being cheated, as was often the case with earlier social welfare programs. Very recently, given the poor agricultural remunerations, the Government introduced the scheme, Pradhan Mantri Kisan Samman Nidhi (PM–Kisan), in 2018, through which each farmer is expected to receive up to Rs. 6,000 (~US$84) as yearly income support. PM–Kisan, along with pensions and maternity benefits, have been some of the newer forms of welfare programs, the scope of which moves away from merely food provisions to a more dignified living through improved nutritional intake, and health and educational outcomes.

Emerging Social Contract: Provisions to Entitlements

Modern nation-states have used welfare systems to promote democratic citizenship—the fundamental principles on which nationhood itself is sustained. A strong citizen-state social contract increases the accountability of the state toward its citizens instills in them the idea of ‘citizenship rights’ and equality thereby promoting social integration, solidarity, and a sense of dignity.³¹ The performance of Indian state in this regard though sketchy, exhibits substantial progress. Instead of developing a “social minimum” for all its citizens, social welfare policy frameworks limited themselves to ad hoc ‘schemes’ and ‘programs’ with a scope of addressing the symptoms of poverty rather than addressing the underlying structural issues. With poorly designed and implemented welfare policies around basic provisions—consumption smoothing through food and income transfer—instead of broad-based redistributive policies to address the structural inequalities in initial endowments, transformation was beyond the scope of social policy. This trend is however changing with a greater policy recognition to the cause of social welfare.

Civil society push for social welfare reforms legitimize them through rights-based constitutional legislation in 2000s and helped move the needle in developing a new social contract which led to an expansion of its safety net programs in all three aspects—form, focus, and scope.³² Yet, while this expansion of social safety nets provides the basic scaffoldings for a ‘welfare system,’ concerted action is required to build a system of entitlement protection as well as promotion which can be leveraged not only to provide relief to the poor but also to propel them toward greater opportunities through broad-based public action— involving both state and citizens—to build resilience and facilitate transformation.³³

Subnational Economic Development and Welfare Regimes

Before we move on to discuss the sources of deprivation, risks, and vulnerability which necessitate social welfare programs in India, it is important to highlight that the national narrative presented above needs a subnational twist. India comprises of 30 states—many of them being the size of nation-states—each of which have had a very different trajectory of economic growth, social development, and the nature of social contract. While India’s structural transformation has been atypical, another unique feature of its development trajectory has been divergence in the subnational growth patterns.³⁴ In terms of social welfare policies, the importance of state governments as implementing agencies has led to radical innovations, suggesting greater importance of subnational governments in being the torchbearer of reforms in the social welfare system.³⁵

In terms of structural transformation, while Punjab, Haryana, and parts of Andhra Pradesh benefited from a spurt in agricultural productivity due to the Green Revolution, Gujarat and Maharashtra took the manufacturing route to transform their economy. Other states, such as Karnataka and Tamil Nadu made use of a combination of manufacturing and skill-based services, while Kerala’s growth model owes largely to its higher human development and remittances from abroad.³⁶ Social welfare policy at the subnational level followed a different logic. More committed to a social democracy, and redistribution, and political unity through by linguistic subnational identity, South Indian states invested more in public service delivery leading to better human development outcomes.³⁷As a result of these socio-economic changes, poverty levels, human development outcomes, and the degree of urbanization vary widely across these states, and therefore, their developmental challenges are unique.

Among the major states of India, higher per capita GDP is associated with a lower share of agriculture in total output (Panel A and B, Fig. 3.4). Among the more advanced states, traditionally agriculture-driven states like Punjab, Haryana, and Andhra Pradesh continue to have a relatively greater share of agricultural output. Other richer states like Gujarat, Himachal Pradesh, and Maharashtra, however, have a greater share of industrial output. In comparison, the more urbanized states—Tamil Nadu, Karnataka, or Kerala—have an economy dominated by services.

Fig. 3.4

(Source Output data from the Economic and Political Weekly Research Foundation [EPWRF] for 2017–18. Other figures based upon the National Sample Survey Office [NSSO] 2011–12)

State-level output shares, workforce participation, poverty, and inequality ranked by per capita output

The structural transformation process is more stunted in some of the poorer and populous states like Bihar and Uttar Pradesh. A closer look at the workforce participation rates (WPR) suggests in that poorer states despite a low share of agriculture in total output, employ a disproportionately greater share of labor in the sector. In fact, agriculture remains the most important employer of workers with little variation across the two richest and the poorest states in the country (Panel C, Fig. 3.4). However, there is a substantial variation in the labor force participation in manufacturing—the poorest states progressively perform the worst. Among poorer states, a large share of the workers, despite living in rural areas, are employed in the wholesale and retail trade, which is largely informal in nature. This suggests that poorer states, with greater pressure on land, are participating in the rural nonfarm informal employment for livelihood. Manufacturing sector has traditionally been the source of large-scale employment of unskilled workers while services not only require more skilled and trained workforce, it employs lesser share of the population. The lack of manufacturing sector as a source of employment in the poorer states has led to the movement of unskilled labor toward poor quality, service-based employment, which portends a combination of agricultural and nonagricultural livelihood-based risks that now exist in rural areas.

The variegated nature of structural transformation and performance of social welfare programs reflects the differential risks and vulnerability of households across the country. For example, social risks in relatively richer and more urbanized states might emerge from loss of employment, informality of livelihood, health shocks, while in relatively rural states, earning loss is additionally accounted by weather shocks, lack of markets, or access to public services. The scope of social welfare policies in both these contexts is to protect as well as to promote their entitlements with varying importance. More advanced regions may require stronger promotional measures such as growth-oriented strategies which build greater skills and human capital, while the poorer regions require greater state support in protecting their fragile livelihoods in addition to promotional strategies.

Building Resilience as the Scope of Social Safety Nets in India

Living in conditions of destitution and poverty—much of which is beyond an individual’s agency—is akin to an “entitlement failure,” and requires strong public action to assist the needy (Sen 1982). Protecting human entitlements and creating equal opportunities for everyone are not only a moral but political imperative in democratic societies. Despite plenty of schemes and programs to address poverty and deprivation in India, concerted public action is lacking. While diagnosing and describing many of these failures in the earlier section of this chapter, we would like to highlight some key economic considerations which are essential to address in imagining social safety nets of the future. These concerns primarily arise from the precarity generated by the stunted structural transformation of the Indian economy and the fixation with money-metric poverty measures as the scope of social policy.

Moving Beyond the Preoccupation with Poverty Line

Let’s first discuss the challenges fraught with poverty reduction as the singular scope of social policy. Resilience is the ability to withstand adverse shocks and maintain a reasonable standard of living. For human development, such resilience stems from human and physical capital endowments. For social safety net architecture to have a transformational impact on human development, the policy scope must move beyond its preoccupation with poverty.

The money-metric poverty line is a concept fraught with theoretical and operational challenges. It creates an artificial boundary between the poor and the non-poor, while ignoring how economic lives among both these groups are so variegated, and vulnerability is differentiated based upon geography, social group, occupation, and physical, human, and social capital. Social welfare programs that are targeted toward the poor—means-tested benefits—often run the risk of lower support among the non-beneficiaries, thereby lowering their effectiveness. At the same time, the amount of transfers has not been able to fundamentally change the relative ownership bundles—physical and human capital—for the poor. At best, they provide temporary relief, which may help the recipients cope with shocks to some extent but does not increase their resilience. At a time when most Indian households continue to be asset poor with a widening of the gap between the haves and have-nots in terms of most productive assets, such as land and income, it is important to focus beyond poverty to have a bigger developmental scope.

Poverty metrics, income or calorie-based, conceal wide fluctuations in household economic circumstances, often within a given year. In the rural areas, income fluctuations arise from the quality of harvest, although it could be due to loss of jobs in the urban areas. Monthly consumption expenditure estimates, as used to measure poverty in India, could vary if made right after the harvest or later. Given the uncertainties of income, by season in developing countries, an accurate understanding of poverty requires a more nuanced understanding of the everyday lives of the poor.³⁸ As India is moving toward a more market-based economy, the ability to purchase a preferred consumption basket, including food and other assets, depends upon the returns from livelihood—returns to cultivation for farmers and wages for the labor.

Income, asset, or expenditure-based poverty estimates shy away from some of the most important factors which influence the current living conditions, such as concerns about security of livelihood, access to common property resources, and essential public infrastructure, including drinking water, health, and education. Many of these non-income factors create conditions of chronic poverty and poverty traps through food insecurity, malnutrition, mortality, and reduction in overall productivity. Food insecurity may lead to malnutrition, which causes reduced physical capacity and stunting, inhibits learning, and may have long-term nutritional, health, and productivity-related effects for present and future generations. An important finding in studies on poverty in India is that most poor households continue to be poor over time, suggesting they experience chronic conditions of poverty trap.³⁹ Those suffering from chronic poverty are not necessarily poor in terms of consumption expenditure, as it is often measured, but due to very low levels of initial endowments of physical and human capital, like land, assets, education, health, and employment, which affect their risk-bearing capacities and their abilities to invest in acquiring employable skills to enhance labor productivity.

Social Safety Nets to Address Multiple Dimensions of Poverty

Comparing India with other countries on various development indicators presents a dismal picture (Fig. 3.5). India’s performance on some of the most important indicators of long-term development outcomes fare the worst. If children are the future of a nation, India is not only home to largest share of undernourished children in the world, but it also holds the ignominious record of having the highest prevalence of anemia among pregnant women across the globe.

Fig. 3.5

(Source World Development Indicators, World Bank)

India's global rankings on development indicators: The numbers of countries depend upon the data availability for the year 2017

Although these are symptoms of poverty to a large degree, without direct support in early childhood, these developmental deficits will not be reduced merely by growth. Distributional consequences of growth have not been very progressive, as inequality has risen since the 1990s. Poor childhood nutrition further brings down human capital attainments. Despite a near universal, free primary education, learning outcomes of children have not improved considerably, and there is a massive dropout rate in their transition to secondary schools. With poor human capital attainment, gainful and secure livelihood opportunities are likely to be sparse in a service sector-driven economy, with return to education strongly tied to skills. As a result, a very small proportion of Indians are able to afford any annual savings. With land and livelihood, both unequally distributed, a very large section of the people are exposed to various kinds of shocks including adverse weather conditions for farm-based workers, unemployment for wage-based ones and health shocks in general. India has one of the highest rates of slide into poverty on account of the high out-of-pocket (OOP) health expenditures. This is where safety net programs—imagined not as a collection of schemes but as a portfolio of initiatives creating a system of protection and promotion through the life cycle—can foster a resilient development process that is not only broad-based but is also inclusive and potentially transformative.

Protecting Entitlements in a Deindustrializing Economy

A defining feature of Indian economy which creates various risks and vulnerabilities is its stunted structural transformation. The current state of Indian economy has been characterized by “premature deindustrialization [and] precocious servicification” wherein the comparative advantage of abundant supply of unskilled labor has been lost (Lamba and Subramanian 2020).⁴⁰ An aspirational India which is urbanizing (albeit, at a slower pace than expected) with limited formal sector jobs, unremunerative agriculture (dominantly of smallholder type), persistent human capital deficiencies, and archaic gender norms, creates newer challenges for social protection policies and requires fresh thinking on how to break from the past policies which considered human deprivation merely as failure of food access. Vulnerabilities of the future, in a globalized market, portends greater upheaval. Highlighting India’s changing economic structure, poverty, challenges of livelihood, and the divergent subnational growth pattern is particularly useful to understanding the current developmental challenges, which further help us in approaching policy designs in a more nuanced way.

Premature Deindustrialization

Premature transition to high-skill service sector employment leads to regional divergence in economic development, as not all states are endowed with a similar nature of economic opportunities, especially in the formal sector, whether in industry or the service sector. Lack of skill-intensive growth implies that labor productivity would continue to be high in the capital-scarce states. In the poorer states of India, where poverty is largely concentrated, the manufacturing sector, especially the formal one, fares worse. At the individual level, a clear labor market segmentation differentiated by education and skill levels would perpetuate inequality, dividing workers by placing them in so-called white-collar and blue-collar jobs, with stark differences not only in income but also in security of livelihoods and access to social security. The differential wages and labor productivities between the high-skill and low-skill workers have been issues of active debate in India, especially after the period of market liberalization, in which some of the workforce (very few) tapped into the dollar economy vis-à-vis the low-skill workers (a huge share), who are still stuck in the rupee economy (Krishna 2017). As a result, redistribution not only of current income, but also of future income and opportunities, remains the most essential of developmental challenges, with grave implications for intergenerational mobility, pathways out of the poverty trap, and for the engendering of development resilience.

Urban Informality

Economic transformation is synonymous with urbanization. Welfare of the rural-to-urban migrant is facilitated by the quality of urban employment. As a result of the premature deindustrialization in India, much of the labor movement has been absorbed in informal, low-skill service sector jobs. According to an estimate by the International Labor Organization (ILO), informal workers constitute 93% of the labor force in India. This amounts to 82% of the total nonagricultural labor force in the country. Informal labor is also typically low in education attainment, with little specialization and skills.

The informal nature of wage-based employment renders a large share of the labor force outside the purview of any form of employer-based safety nets. According to the Periodic Labor Force Survey (PLFS) conducted by the Government of India in 2017–18, 71.1% of the people working as wage or salaried employees in the nonagricultural sector had no written job contracts, 54.2% were ineligible for any paid leave, and 49.6% did not have access to any social security benefits. If one adds these numbers to the self-employed workers—another large share of workers in the urban space—most of the workers have little protection against livelihood risks.

As urban employment is largely in the form of self-employment, small industrial firms, or the service sector, collective action through organized labor fronts has been increasingly difficult. Informal workers are not officially recognized by their employers in the same way as those formally on their payrolls. Being outside the purview of legal regulation, and not supported in anyway during labor retrenchment or illness, laborers face a perpetual exposure to job loss and frequent periods of unemployment, which makes them vulnerable to long-term unemployment and poverty. Many of those working in the informal labor force are migrants—footloose labor, moving from one urban center to the another, originally belonging to villages, but in search of work elsewhere (Breman 1996). Not only do they lack the social network they left behind in their villages, but they are more liable to be cheated through denial or underpayment of wages in the labor market, as a study of casual “day labor” markets on the outskirts of Mumbai shows (Naraparaju 2016). As contract enforcements in the informal labor market are difficult and employer-based social protection programs on the wane, the workers have turned to the state for social protection in the wake of economic losses (Agarwala 2013). With a reduction in the power of urban informal workers as employees, instead of demanding traditional work benefits from employers, these workers demand, on the basis of their “citizenship,” welfare from the state. Yet, most of the welfare programs have been focused on the rural poor, and urban poor often suffer from dispossession, pauperism, and vagrancy (Breman 2016, 2019). The desperate scenes of migrant laborers walking to their homes, after the economy-wide lockdown in the wake of COVID-19 induced social distancing, was a painful reminder of the precariousness of the urban labor market situation.

Stagnant Farm Income

While the urban poor, largely a part of informal sector, suffer from precarious livelihoods, farmers in the hinterland are currently struggling with lower returns to cultivation. A major challenge for the Indian economy in the recent past has been the lack of commensurate increase in farm income. In 2016, Prime Minister Narendra Modi, in his Independence Day speech, proclaimed the government’s ambition of doubling farm income by 2022. This declaration came in the wake of stagnant farm income in the preceding decade. However, as this book goes to press, we have not seen much progress on that front, except for the announcement of cash transfers to farmers in the form of PM-Kisan. Yet, the transfer of money, while a commitment to farmers’ concerns, fails to address the issue of farm productivity, an issue which requires curative reforms rather than palliative care.

Stagnant farm incomes—around 1% since 2011–12—have been a grave policy concern, as a large share of the rural population (61% of the total population) relies on it, directly or indirectly (Chand et al. 2015). The National Sample Survey suggests that during a decade (2003–13), the income of agricultural households grew by a mere 34% in real terms (Chandrasekhar and Mehrotra 2016). Much of this increase, however low, came from other sectors, such as livestock and other nonfarm enterprises, rather than from cultivation. The increase in income was differentiated by the size of landholdings, with the smallholders faring worst. Are there ways to think of how safety nets could be leveraged to promote rural incomes? Income through guaranteed employment, through the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), has been one such program to reduce rural poverty, but it does little to increase farm income, which is related to productivity increase and better market access. From the perspective of this book, it is therefore useful to assess what is the role of existing safety nets in propelling farm income and addressing rural poverty in the future.

Rural Nonfarm Employment

Along with the urban labor, rural agricultural labor has a peculiar problem. Increasingly, as farm sizes have become smaller, and the rural economy grows in the shadow of urban growth, the nonfarm sector has become a necessary part of the Indian rural economy by absorbing surplus labor from agriculture. Between 1983 and 2004, rural nonfarm output grew at faster pace (7.1%), compared to overall agricultural output growth (2.6%), creating more remunerative livelihoods (Himanshu et al. 2011). A large share of the farming households (88%) engage in a portfolio of other activities, such as livestock or wage/salaried employment to diversify their earnings stream (Chandrasekhar and Mehrotra 2016). In fact, the growth of rural nonfarm employment has been instrumental, therefore, in reducing poverty, promoting social mobility, and increasing food security in the Indian villages (Himanshu et al. 2013; Rahman and Mishra 2020). Not only has nonfarm employment been pro-poor in India, but it has also provided an effective insurance against the uncertainty of farm-based income (Lanjouw and Murgai 2009).

The diversification is especially important from the perspective of smallholders, as the rising population burden on land has led to a reduction in average land size in rural India. Between 1970–71 and 2015–16, total operational holdings almost doubled from 71.01 million to 146 million, but the average farm size halved from 2.28 ha to 1.08 ha. This has led to an increase in the share of small landholders who currently cultivate 47.3% of the operational agricultural land and possess 86.21% of the total landholdings. Without diversification into nonfarm activities, one-fourth of smallholders are likely to fall, therefore, below the official poverty line (Chand et al. 2011). Yet, despite this diversification, as greater numbers of people own smaller parcels of land—their principal physical asset—the risk to agricultural income, the most stable type of income in rural areas, has increased. Any incidence of bad harvest, job loss, or any form of health shock is likely to put these farmers at risk of falling below the poverty line. The subsistence earning, which nonfarm employment has managed to provide, has only ensured sustenance with very little asset accumulation to develop resilience against shocks.

Scope of This Book: Leveraging Social Safety Nets to Promote Development Resilience

Given India’s current economic structure and the persistent human development deficit, this book tries to imagine a social safety net architecture that promotes development resilience. This chapter marks out the basic contours of India’s economic development trajectory and the emergence of a social welfare architecture in the country—as relief-induced state intervention to citizens’ rights along its path of economic development, and democratic deepening—against the persistent human developmental challenges. From the vantage point of many years of learning from various social welfare programs, within and outside of the country, we provide a theoretically and empirically grounded analysis of how India’s social welfare programs need to be reoriented to achieve development resilience in the future.

We argue that while the safety net policies in maintaining a “social minimum” of human needs has expanded in scope from basic food provisions to nutrition, income, and health, the performance of social safety nets has left much to be desired in terms of have a transformational effect. Although safety nets have provided relief to the poor, they have not promoted development resilience such that the poor are able to overcome their low initial resource endowments and the non-poor are able to sustain themselves continuously at higher levels of development. Studying the social safety nets in India, in terms of their focus, scope, and form, we provide a comprehensive review of the set of programs that provide the basic social protection scaffolding and speculate upon future policy directions. Safety nets in the future, in our framework, should be aligned with the changing forms of risk and vulnerability along the path of structural transformation.

Policy debates around the nature of assistance (in-kind food or an equivalent amount of cash), nutritional assistance in utero and in early childhood, free school meals, public works employment, and health insurance have evolved according to the policy imperatives of the time, political initiatives, and the technological infrastructure of public service delivery. We argue that the expansion in scope of safety nets continues to lack synergies across developmental objectives, and various social safety nets work in isolation, therefore, remaining limited in overall impact. The design of these programs, in terms of their focus and form, is further afflicted because it was designed for an agrarian population when poverty was considered a rural issue. Economic growth and structural transformation have not only brought about prosperity but also created newer forms of economic risks and social vulnerability, especially when the fruits of growth have been unequally distributed—across regions and people. Economic redistribution through social safety nets, therefore, remains key to a more resilient and sustainable development path. As a result, we study social welfare policies, looking forward to an India of the future, which would be more urbanized, service sector-driven, and with greater reliance on nonfarm employment, even in rural areas. In such a setting, socio-economic risks would therefore emanate from the loss of livelihood and income-earning capacities arising out of exogenous health and weather shocks.