Anti-Poverty Transfers: Policy Successions with Little Success

Abstract

Indian social welfare policy has traditionally considered poverty to be synonymous with hunger and famines in rural areas. Ongoing changes in the demographic and economic structure of the country, however, require a reorientation of anti-poverty policies toward the various emerging sources of poverty and vulnerability to foster a resilient development process. In this chapter, we identify the following key aspects of livelihood risks in the wake of India’s stunted structural transformation—smaller landholding size, low skill levels among workers, the dominance of informal employment, the slow pace of urbanization, and an aging population. We further suggest ways to adapt to these changing economic realities.

Introduction

Individuals are poor because they were born into poor households, or because they are pushed into poverty in the wake of adverse economic shocks. Asset-poor households in low-resource settings are particularly vulnerable to poverty traps and require sustained efforts—state support, entrepreneurial zeal—to be able to improve their well-being. Development resilience implies enhancing the ability of poor to accumulate assets, withstand negative shocks, and increase their adaptation options to sustain a reasonable standard of living and emerge from the poverty trap (see Barrett and Constas 2014). In a resilient system, non-poor households are either able to resist the ill-fare caused by negative stressors or bounce back to the same level of welfare in quick time. Loss of livelihood is considered the most common form of shock that exposes a household’s economic vulnerability. While farmers face unanticipated risks of poor harvest, or loss of crops, a wage-based worker is vulnerable to the risk of potential job loss. Agricultural risks and the risk of unemployment are commonplace and contribute to current as well as future vulnerabilities. Persistently high poverty, in the long run, slows down the economic growth process. Anti-poverty policies, therefore, not only have a moral imperative but are a necessary device for sustaining economic progress and building development resilience. The policy instrument for anti-poverty transfers, however, is variegated across contexts. Advanced nations, with a smaller share of farmers, design their social protection policies for the wage-based workers in the form of labor social insurance or labor regulation policies. Developing countries, on the other hand, face a greater risk that emanates from having a large share of rural population who are prone to climate-related risks and greater amount of informality among urban livelihoods.

For poorer households, either because of a transitory income loss or poor resource endowment to begin with, a resilience development process would call for appropriate support to reduce the number of poor—to lift people out of poverty—and subsequently, to reduce the likelihood of future poverty. Unemployment and livelihood vulnerability is the most immediate determinant of current as well as future poverty. As a result, developing countries like India focus on direct social assistance, such as direct food assistance, public employment programs, social pensions, and cash transfers.¹

India has experimented with implementing some of the world’s largest rural anti-poverty programs, including rural public works, public infrastructure investments, rural livelihoods, and social pensions, which have been at the center of global debate on social protection and have had varying degrees of success and failure. In this chapter, we review the stated scope, focus, and form of these policies and deliberate upon how anti-poverty social safety nets in the future might look in the wake of India’s stunted structural transformation, evident by its stagnant farm income, rising nonfarm employment, urbanization without industrialization, and informality of livelihoods.²

Poverty Reduction Strategy in India’s Planning Process

The pursuit of economic growth through industrial development—with the assumption that the fruits of growth would “trickle down” to the poor—without a deliberate redistributive policy has proved a bane for India’s structural transformation. The state-led push toward industrialization did not create large-scale employment and led to a neglect of other sectors—agriculture, primary education, and public health infrastructure—in the early years of economic planning which hindered broad-based economic development and the creation of a skilled and productive labor force. Although the agricultural sector did benefit subsequently from the technological advancements brought about by Green Revolution, these benefits were restricted to relatively well-endowed regions (in terms of irrigation potential) and landed groups which widened regional and interpersonal inequalities.³

Indirect Attacks on Poverty Reduction

Given the history of famines during the colonial era, the post-independence planning process continued to view poverty as synonymous with hunger in rural India. As a result, state policy pursued the path of “grow more food” to reduce hunger.⁴ While food security—sufficient food availability at the national level—was attained through Green Revolution, issues of hunger and food access for the poor, continued to remain a major concern.⁵ Rural poor neither possess economically viable amounts of land to cultivate, nor do they have employable skills to leave agriculture or agriculture-based employment. Yet, there was no direct action on poverty, except for some small-scale and ad hoc interventions, until the 6th Five-Year Plan (1980–85).

Admitting to the “failures of the past three decades of planning,” the 6th Five-Year Plan document, for the first time, discussed the ideals of a social minimum: a minimum needs program (MNP) to support consumption and provide social services to enhance overall quality of life and eradicate poverty) (Government of India 1981). It highlighted the immediate need to assist the poor with “an appropriate package of skill development, technologies, services and productive asset transfer programme and wage employment.” A menu of rural development programs and employment-generating public works program—the two-pronged strategy for reducing rural poverty—were introduced as the means of redistribution, increasing agricultural productivity, and support for the poor. These programs were not a huge success, and therefore, were constantly rebranded and reintroduced (see Fig. 4.1).⁶

Fig. 4.1

(Source Author’s conceptualization)

Anti-poverty programs over time, with a focus on rural development and public work schemes

Rural Development and Agricultural Productivity

Inadequate rural infrastructure and markets were identified as key causes of rural poverty. With the scope of reducing long-term poverty, the Integrated Rural Development Programme (IRDP), composed of a matrix of subprograms, was introduced by the central government in 1978, expanding to cover the entire nation in 1980.⁷ The scope of rural poverty reduction principally relied upon increasing agricultural productivity through providing the rural poor with income-generating assets—agricultural inputs, subsidies, and credit. IRDP, however, did not succeed. The targeted focus on poor, as measured by the income levels, not only led to errors of inclusion but also failed to ignore the distinctions between chronic and transient poverty. By prioritizing subsidized credit as the form of transfer, instead of a broad-based array of productive assets, its scope of increasing agricultural productivity was further undermined.⁸ The top-down design of the program further led to pervasive corruption in providing benefits to the last-mile beneficiaries.⁹ The 7th Five-Year Plan admitted to the flaw in the design of IRDP and stressed for the need for shifting resources toward self-targeted rural employment programs instead, which would provide wage income while creating durable rural infrastructure at the same time (Government of India 1985).¹⁰

Public Works Programs

The focus on programs that increase agricultural productivity may not serve the needs of the chronically poor and landless. The employment-generating public works programs, the National Rural Employment Programme (NREP) and the Rural Labour Employment Guarantee Programme (RLEGP), were therefore envisaged as supplemental forms of social assistance.¹¹ Without much impact, both NREP and RLGEP were merged into Jawahar Rozgar Yojana (JRY, or the Jawahar Employment Scheme) in 1989.¹² Subsequently, the Employment Assurance Scheme (EAS) was launched in selected poorer regions in 1993, with a national expansion in 1997, with a primary objective of providing “gainful employment in manual work during lean agricultural seasons to all able-bodied adults in rural areas who are in need of work, but cannot find it” and a secondary objective of creating “economic infrastructure and community assets for sustained employment and development.” In 1999, JRY was restructured as Jawahar Gram Samridhi Yojana (JGSY, or the Jawahar Village Advancement Scheme), which changed its primary scope from employment generation to creation of rural public infrastructure—construction and maintenance of public infrastructure, such as irrigation projects, road construction, flood protection, drainage works, ecological conservation, and drinking water supply schemes, etc. Given the similarities in focus, scope, and form, EAS and JGSY were combined into Sampoorna Grameen Rozgar Yojana (SGRY, or the Universal Rural Employment Programme) in 2001, with a twofold scope: rural public infrastructure creation and generation of wage-based employment.¹³ The importance of a public works program in social welfare policies, however, gradually declined until the National Rural Employment Guarantee Act (NREGA) was passed in 2005.¹⁴

From Agricultural Productivity Enhancement to Self-Employment

IRDP was restructured in 1999, and was subsequently reintroduced as Swarnajayanti Gram Swarozgar Yojana (SGSY, or Golden Jubilee Rural Self-Employment Programme). SGSY departed significantly from its predecessor in terms of program scope. Instead of providing credit and subsidies to improve agricultural productivity, SGSY aimed to promote self-employment among the rural poor by organizing them into self-help groups (SHGs) and providing them with the required infrastructural and technical support, such as technology, credit, and marketing infrastructure to facilitate the establishment of microenterprises.¹⁵ SGSY, unfortunately, suffered from the same faulty design as the IRDP. Neither the form of assistance—credit, subsidies, and skills—suffices in ensuring income-generating activity for the poor, nor does the focus on poor ensure better targeting of the beneficiaries. Only 22% of the 25 million households, which organized themselves into SHGs by 2010, succeeded in accessing bank credit. Further, by restricting the scope of the program to a single livelihood activity, it failed to adequately meet the multifarious livelihood requirements of the poor. The subsidy without sufficient mobilization and collectivization of the SHGs led to high attrition among its members. The only laudable aspect of SGSY was recognition of women as “economic beings” in economic policy, through mandating 40% of the employment should be for women. SGSY was later renamed the National Rural Livelihood Mission (NRLM) or Aajeevika in 2011, to be later merged into the Deen Dayal Antyodaya Yojana (DAY), which also included urban livelihood issues within its fold in 2015.

Unlike SGSY, which relied upon allocation of resources from central government, NRLM adopted a demand-driven strategy, in which state governments had greater autonomy in implementing the program.¹⁶ Central allocation would depend upon approval of annual action plans to be submitted by the state governments. Most importantly, the identification of the poor in the NRLM, instead of through a state-identified poverty classification (BPL), would be done through a participatory identification of the poor. NRLM was motivated by a “livelihoods approach” to reducing rural poverty and sought to “increase household income through sustainable livelihood enhancements and improved access to financial services,” with a specific focus on women-led SHGs.¹⁷ Under NRLM, the poor can assert their developmental needs, access entitlements, or seek assistance for self-employment and job skills, instead of seeking state-provided, unconditional social safety net benefits to bail them out of poverty.

Urban Poverty as a Residual of Rural Poverty

Poverty was considered a rural phenomenon in social policy until the 7th Five-Year Plan (1985–90), with the assumption that urban poverty is a spillover of rural poverty. Given that a large share of the Indian population was classified as rural, anti-poverty policies were exclusively focused on risks related to agriculture and landlessness, as discussed in the earlier section. Gradual deregulation of economic activity from state control in the 1980s encouraged private enterprise, and gradually, greater urbanization and rural–urban labor mobility alerted policymakers to the concerns of migrants, to the proliferation of slums, and the rise of low-wage, unskilled work in urban areas, leading to a growing share of informality dominating urban employment patterns.

Continuing the trend of promoting self-employment, as in rural areas, Nehru Rozgar Yojana (NRY, or the Nehru Employment Scheme)—the urban version of JRY—was launched in 1989, with the scope of providing self-employment avenues to the poor unemployed and underemployed individuals through required training and subsidized credit assistance to set up small businesses. For the Class II cities (with a population of 50,000–100,000), the Prime Minister’s Integrated Urban Poverty Eradication Programme (PMIUPEP) was introduced in 1995, with similar aims. Yet, these programs failed for similar reasons: lack of clear targeting rules, lack of integration of urban poverty reduction plans with other development plans, and the inadequate involvement of community-based organizations to coordinate demand and monitor these schemes. NRY and PMIUPEP were phased out during the 9th Five-Year Plan, and a new program, Swarna Jayanti Shahari Rozgar Yojana (SJSRY), was introduced in 1997. Similar in spirit to its predecessor, sought to promote self-employment as well as wage employment. Under the program, across all urban local bodies (with populations less than 500,000), wage-based employment to the identified poor was to be provided, for the creation of socially and economically useful public assets. The 10th Five-Year Plan, however, noted that SJSRY has been unsuccessful and recommended inclusion of contributory benefits such as insurance against the death of the primary breadwinner, or against sickness or disability, and old age benefits with matching contributions from the government. The 11th Five-Year Plan further called out the ineffectiveness of SJSRY, suggesting a restructuring of the program. In 2013, the scheme was renamed the National Urban Livelihood Mission (NULM, then DAY–NULM in 2014), with a similar scope of reducing “poverty and vulnerability of the urban poor households by enabling them to access gainful self-employment and skilled wage employment opportunities, resulting in an appreciable improvement in their livelihood on a sustainable basis, through building grassroots level institutions of the poor.”

Despite the rising share of urban population, social safety nets for the urban poor have largely been ignored. Anti-poverty policies aimed at the urban poor have been designed around creating gainful livelihood opportunities through facilitating access to market for credit, providing skills, and market-based employment to those identified as poor. These programs, however, have done little to alter the initially skewed human or physical endowments among the population. Global evidence on using self-employment generation activities to reduce poverty has also highlighted their limited abilities to bring about transformational change, as they are beset with implementation problems—most importantly, in identifying the poor. Urban Local Bodies (ULBs)—central to identifying beneficiaries, liaising with the banks, and assisting beneficiaries in the selection of projects, allotment of sites, and other related matters—are hardly autonomous and empowered to be effective. Although the 74th Amendment of the Parliament in 1992 provides ULBs with functional, financial, and administrative autonomy to be self-governing institutions, they are still struggling to be fully decentralized and autonomous.¹⁸

MGNREGS: Rural Employment Program Back in Vogue

The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has arguably been the most impactful anti-poverty program in India. Unlike earlier other programs, which promised employment but did not provide an entitlement to work, NREGA enshrines “right to work” as a constitutional guarantee to every citizen in rural areas. It is the largest public works program in the world—600 million rural residents are eligible to receive its benefits, and 0.5% of India’s GDP goes to its funding. Under MGNREGS, anybody in rural India who is willing to work at a pre-announced minimum wage rate will receive work from the government for at least 100 days. The guaranteed employment under the MGNREGS, therefore, has reduced economic insecurity, which no earlier program provided. Contrary to other programs, its effectiveness relies largely on the “self-selection” aspect of it, which ensures that the program’s benefits are not captured by the privileged elites, as has happened in earlier programs. MGNREGS also addresses another major developmental challenge in the country: very low participation of women in the labor force. It encourages the participation of women by providing work and childcare facilities (within 5 km of a participant’s village), with wages in parity with men. It, thus, provides higher wage bargaining power to the workers, especially women. MGNREGS, therefore, provides the safety of a next-best livelihood opportunity being available around one’s village, without incurring any search costs. Self-selection into the program often happens in the wake of a job loss, crop failure, or death of livestock, even for those households that would otherwise have sufficient assets. Given the nature of work—unskilled labor which requires no training—MGNREGS also reduces inequality, as only the poorest enroll into the program. Since the public works, for which the labor is employed, are used to create community public infrastructure, the program also contributes to improvements in agricultural productivity, which along with greater income among the wage workers, contributes to overall economic growth.

The idea of MGNREGS was initially viewed with a great degree of skepticism. It was criticized as populist “make-work” or “dig-and-fill-hole” wasteful expenditures, with little potential for asset creation.¹⁹ Such assertions implied that the program’s primary objective is employment generation and asset creation was just a residual gain. While some of this criticism was based upon earlier employment creation schemes that had failed to work, there was also concern about India’s inadequate state capacity to implement such a program efficiently. It was believed that a rules-based social welfare program, which is open to political and bureaucratic manipulation and local corruption, could not last long in India. The success of MGNREGS, however—with around 600 million people eligible to work under it—belied many of these speculations, despite the limited administrative capacity of the Indian state, especially at the local level. The criticisms around MGNREGS not creating sufficient public infrastructure was also misplaced, as around 36 million assets had been created under the scheme by 2019.²⁰ Although we would not assert that MGNREGS is the best answer to India’s poverty problem, surely the program is among the most important components of social protection in India and has helped in engendering development resilience in rural India.

It is important to look at the ways by which MGNREGS has affected rural poverty and economic development.²¹ Overall, MGNREGS led to an increase in the aggregate economic output by 1–2% per capita (Cook and Shah 2020), including several intermediate contributing welfare gains, such higher market wages (Imbert and Papp 2015), economic security against rainfall shock (Berg et al. 2018; Zimmermann 2020), agricultural intensification (Deininger et al. 2016; Gehrke 2019; Bhargava 2021), greater female labor force participation (Azam 2012), and reduction in seasonal migration (Imbert and Papp 2020).²² In addition to economic contributions, NREGA has been instrumental in ecological restoration. By employing labor to work on restoring soil fertility and groundwater conservation, conditions have improved for millions of Indian farmers whose livelihoods are affected by declining soil fertility and destruction of watersheds (Esteves et al. 2013; Ranaware et al. 2015). What is most impressive is the incredible diversity of rural public works that have transformative implications for rural development, as they enhance rural income, improve productivity, build ecological resilience, and assist in disaster-related management (Narayanan 2016). The rural infrastructure created has helped the small and marginal farmers, especially, who are the most vulnerable to economic shocks.²³ To summarize, MGNREGS allowed the complementarity of public and private investment needed to bring about a transformative development.

Why did MGNREGS succeed? A variety of reasons, which are also important for designing social safety nets in the future, must be highlighted. The universally applicable program had people self-selecting into it, which allowed the most vulnerable to demand work, avoiding the challenges of a targeted program (Liu et al. 2020). Through decentralization of work decisions—the nature and choice of work along with site selection as discussed in open assemblies (gram sabhas) and approved by village councils (gram panchayat)—MGNREGS engendered participatory decision-making and strengthened local democracy and public consciousness of their rights (Shah 2007).²⁴ Mandated social audits of the program further increased transparency and accountability in delivery systems.²⁵ Transfer of wages to beneficiaries in their bank accounts or post office accounts reduced the incentive of local officials to cheat.²⁶ With the use of biometrics smartcards to authenticate payments, leakages, corruption, and delayed payments to the beneficiaries have subsequently been reduced, leading to a greater overall impact of MGNREGS (Muralidharan et al. 2016).

Direct Income Support to Farmers

While MGNREGS provides an employment avenue for farmers during lean seasons, farming itself has been unremunerative in India for a large share of small and marginal farmers. A major debate in the Indian policy has, therefore, been how to increase farm income. The most recent statistics from the government, Situation Assessment of Agricultural Households and Land and Holdings of Households in Rural India 2018–19, suggests that income from cultivation has declined for farmers from 48 to 38% between 2012–13 and 2018–19. With a decline in the share of income from cultivation for the farm households and lack of formal employment outside of the farm sector, rural livelihoods remain vulnerable. One must note that while rural poverty reduction was brought about by productivity growth during the 1970s and 1980s, urban demand has contributed to poverty reduction since the 1990s (Gibson et al. 2017; Datt et al. 2020). However, there are limits, especially when the urban economy has not been able to absorb the surplus agricultural labor and increase agricultural productivity.

Given the stagnancy in farm income, the Government of India, in 2019, announced an annual direct cash transfer of Rs. 6,000 (US$84)—under the name of Pradhan Mantri Kisan Samman Nidhi (PM–Kisan) scheme—as minimum income support to all small and marginal landholder farmer families who collectively own cultivable land of up to 2 hectares.²⁷ The introduction of PM–Kisan came on the back of Prime Minister Modi’s proclamation of doubling farmer’s income by 2022.²⁸ The idea of direct income transfer followed a similar announcement by the Government of Telangana under the name of Rythu Bandhu in 2018. The government of Andhra Pradesh, later in 2019, supplemented the transfer with Rs. 9000 (US$125) more, as part of their scheme named Annadatha Sukhibhava. Income support to farmers, instead of addressing productivity issues and seasonal risks, has its precedence in the waiving of farm loans periodically by successive governments. Since only institutional credit could be waived, and most smallholders rely upon informal lending sources, loan waivers did not benefit the poorest households. And there has been substantial unrest among the small farmers, who also comprise the largest share of voters. The restricted focus only on farmers is especially problematic when a large share of the rural population is engaged in nonfarm labor employment. It is also not clear what the scope is of such transfers. If it is an income support, without adequate incentive to increase agricultural productivity, there is certain to be demand for incremental increases in such transfers in the future.

Social Pensions

Social transfers, such as pensions for the elderly and vulnerable with limited ability to engage in gainful employment, not only provide human dignity, but also build household resilience through smoothing consumption in the short term and arresting the intergenerational persistence of poverty. This most vulnerable section of the population traditionally relies upon family and community support for their sustenance. While those with accumulated savings and strong support networks can rely upon this support in times of distress, the miseries of the vulnerable persons in poorer household’s only increases. Indian social welfare policies until 1995—when the National Social Assistance Program (NSAP) for the elderly, sick, widowed, and disabled was introduced—did not focus on assisting the elderly, sick, widowed, and disabled. NSAP has five components: 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 Annapurna. These schemes cover both rural and urban households. IGNOAPS is a noncontributory transfer under which the elderly (60–79 years), possessing a BPL card, are eligible to receive a monthly pension of INR 200 (US$3). For those above the age of 80, the pension is higher at INR 500 (US$7.5). Widows (40–79 years old) are entitled to INR 300 (US$4) a month under IGNWPS, while IGNDPS benefits are fixed at INR 200 (US$3) a month. Various state governments supplement these pensions and relax the eligibility rules. As a result, IGNOAPS beneficiaries may receive anywhere between INR 200 to INR 2,500 per month, depending on state. NFBS is a one-time, lump-sum transfer of INR 20,000 (approximately US$300) to a bereaved family, upon the death of the primary breadwinner. Under the Annapurna scheme, instead of cash, a monthly quota of 10 kg of food grains is provided instead to the elderly who are not covered under IGNOAPS.

Social pensions are among the few schemes that are highly efficient with low targeting errors, corruption, or leakages, even in areas of poor governance (Dutta et al. 2010; Gupta 2013; Chopra and Pudussery 2014). Although NSAP suffered from underutilization during its early years, there has been steady improvement with time. Around 30 million people benefited from these schemes with an overall outlay of INR 92,000 million (US$1,250 million) in 2019–20. Yet, there are limitations to social pensions building resilience. In terms of their focus, using BPL cards as the identification criteria to ration the eligible households has led to a persistence of errors, much to the detriment of the poorest (Asri 2019). Also, monthly pensions are sufficiently low to cover only basic needs of individuals, without allowing them to access quality health care. State governments, however, have taken a lead in expanding IGNOAPS, beyond the BPL households and with additions to the monthly pension amount, and expanding coverage beyond the BPL households. Yet, targeting errors remain high (Bhattacharya et al. 2015).

The impact of social pensions on reducing poverty, as well as redistributive aspect and overall resilience, is immense. These transfers are an important resource for the household to fall back upon during times of calamity for intergenerational transfers in resource-constrained societies with multigenerational co-residence as a social norm.²⁹ IGNOAPS, despite being a small benefit, has been an important source of poverty reduction, improving health care access and intergenerational transfer for the benefiting households (Kaushal 2014; Unnikrishnan and Imai 2020; Unnikrishnan 2022).

Absence of an Integrated Anti-Poverty Strategy

India’s action on poverty and redistribution can be classified as a classic case of “policy successions” in which schemes and programs, without the desired impact, have been repeatedly repackaged and reintroduced.³⁰ Often designed in the wake of a calamity and reoriented with political regime change and ideological orientation, these schemes not only have suffered from a poor understanding of the causes of poverty and vulnerability—structural and transient—but also from meager state capacity for effective implementation.³¹ While poor implementation is a function of lower administrative capacity and corruption, faulty conceptualization of the schemes has resulted from incoherent policy design and only lip service paid to redistributive social welfare, with limited focus, form, and scope (Table 4.1).³²

Table 4.1 Anti-poverty programs: Focus, form, and scope

By focusing solely on the poor (without the means to identify them) and providing market-based subsidies or supply-driven employment avenues (either through rural development or public works program), Indian social policy incurred some of the most vexing problems from which redistributive policies in developing countries suffer. First, in the absence of information about a household’s socio-economic situation, the identification of poor is most likely to be erroneous. Second, there is a great amount of variation in the degree of deprivation and human needs within the poor. The ideas that fruits of growth would “trickle down” or that market-based subsidies through IRDP or self-employment programs could lead to a reduction in poverty not only belied India’s acute poverty status but further exacerbated the socio-economic disparity among people. Also, the success of these schemes has relied upon a strong political commitment and state capacity to effectively deliver benefits. Poorly developed local institutions—rife with corruption and elite capture—have acted only as an impediment.

Recognizing these concerns, there have been clarion calls for introducing cash transfers as a substitute in multiple schemes and programs to overcome the pervasive “culture of immunity in public administration and weakened local government” (Subramanian et al. 2008, pp. 86).³³ Over the last seven decades, as India’s economic and governance system has improved, cash transfers—through social pensions and farm support programs like PM–Kisan—are gaining in importance. We would like to highlight here again that the focus and forms of anti-poverty transfers in India have been intrinsically linked to the economic structure and political ideology of the times. Rural development and wage-based employment (scope) were the developmental concerns of a primarily agrarian economy during India’s initial planning years. The focus of these programs was largely to help the poor. Current challenges of India are, however, different, and therefore, the social policies need to be tailored accordingly.

Anti-Poverty Policy in the Future

Building anti-poverty policies for the future must be attuned with India’s changing demographic and economic structure. There are some keys facts to be considered. While agriculture contributes to a little less than a fifth of overall GDP, it employs more than 50% of the labor force. Eighty-nine percent of farmers are smallholders, with a significant share of income from occupations beyond cultivation, and with no substantial increase in income for more than a decade.³⁴ Also, smallholders are working on declining sizes of their farms. The average landholding size in rural Indian has declined from 2.28 hectares in 1970–71, to 1.55 hectares in 1990–91, and in 2015–16, it stands at 1.08 hectares per landholding (Panel A, Fig. 4.2). Furthermore, while the anti-poverty policies continue to be focused on rural areas, India is also urbanizing. Settlement patterns from the last five decades exhibit a secular decline in the share of rural areas, and in smaller hamlets, in particular (Panel B, Fig. 4.2). While India’s urbanization has been slower than anticipated based upon the urban-rural classifications defined by the census, urbanization of built structure and related livelihood opportunities are fairly apparent.

Fig. 4.2

Economic structure and newer forms of vulnerabilities

The proliferation of smaller towns has been an important source of rural poverty reduction, by providing markets and employment opportunities for the villagers, but urbanization patterns have been exclusionary generally, creating classes of small formal and larger informal sector workers with inequitable access to quality housing and public services for the urban poor. The informality aspect of India’s employment structure is fairly concerning, as a large share of the nonagricultural workforce is casual in nature (Panel C, Fig. 4.2). Even among the wage earners or salaried workers, 67.3% had no written job contract, and 54.2% do not have access to any form of employment-based social security.³⁵ Self-employed persons comprise the largest share of the workforce (dominated by the agricultural workforce); they are outside the formal sector and thus, do not have access to social security.³⁶

Many of the farmers, who want to move away from agriculture, find themselves in the informal sector without the required skills to get formal sector jobs, which further limit sustainable income opportunities. As a result, around 100 million people in India migrate internally from one place to another for work, but on a short term or seasonal basis, with only a low rate of permanent migration, which further inhibits a faster pace of structural transformation. Lastly, India’s demographic composition (population age pyramid), with increasing life expectancy and declining fertility rates, is expected to bulge toward a greater share of elderly population (60 years and above) by 2050, reversing the current youth dividend (Panel D, Fig. 4.2). Thus, economic risks, catastrophic shocks, poverty traps, and subsequently, social welfare programs need to be understood within the context of these facts.

Livelihood Resilience for the Rural Poor

Vulnerability among rural households emanates from small landholding size, stagnant income from farming, lack of employable skills, and the precariousness of wage-based, informal employment. For farmers, adverse weather events, heightened by looming threats of climate change, will continue to pose risks in the future. Declining size of agricultural holdings will constrain the household resources further in coping with risks and in being capable of introducing productivity-enhancing technologies. The movement of farming households toward nonfarmer livelihoods—the dominant feature of rural household income—is no less prone to economic risks. Poorly skilled rural labor is ever susceptible to employment and wage loss with no recourse to formal employment-based social security. Overall livelihood vulnerability—not only farming risks—will affect the demand for social welfare policies in the future, as the share of rural population continues to be sizable, especially as a political force.

Notwithstanding the importance of traditional social safety nets—rural development and wage employment programs—development resilience can be achieved only through sustainable farm and nonfarm livelihood opportunities to further facilitate an enhancement of the physical and human asset base of rural households. It must be recognized that the scope of household anti-poverty transfers in the form of wages or cash assistance is to address the immediate needs of the vulnerable households. Households trapped in chronic poverty need the economic floor of sustenance, as provided by existing anti-poverty programs, like MGNREGS or cash transfers. The transformative effect of anti-poverty policies should rely on how the gamut of social safety net programs works in unison—some prevent immediate poverty, while others protect against the future likelihood of poverty—which will lead to transformation through quality education, market infrastructure, and employment avenues. For those vulnerable to livelihood loss, cash transfers through PM–Kisan or wage-based employment through MGNREGS will continue to be important forms of social policy to address immediate rural vulnerabilities.

Strengthening MGNREGS in Poorer States

Looking ahead, MGNREGS should continue to play a key role in sustaining the income of the vulnerable households, sustaining the rural economy, if there is surplus labor in the rural economy. Furthermore, income earned through MGNREGS is likely to boost the rural economy, especially for private sector development, by raising demand for consumption or production inputs. By bringing more women into the local workforce, MGNREGS can also reduce the stigma around female labor force participation in rural India. MGNREGS has substantial scope to contribute to the future through arresting the emerging challenge of environmental degradation, poor quality of rural infrastructure, and the strengthening of participatory grassroots democracy—all very important components of developing resilience. In the future, even when higher prosperity may reduce demand for the MGNREGS, the scope of quality rural infrastructure creation, especially for climate-proofing against climate change effects, need to be recognized as a significant role. It could help increase agricultural productivity and stem environmental degradation.

A key challenge for MGNREGS is the improvement of its performance in the poorer states of the country, such as Bihar, Uttar Pradesh, and Jharkhand.³⁷ The failure of MGNREGS in poorer states brings to fore an important factor to the success of social protection programs in India—politics. The implementation of a demand-driven, decentralized social safety net like MGNREGS relies essentially upon engendering empowerment—political, civic, and eventually, economic—and an improvement in administrative accountability. The poor beneficiaries in economically backward regions are often denied their entitlements because of a lack of information on the program, reduced citizen bargaining power, and pervasive rent-seeking among the local bureaucracy perpetuates corruption and underdevelopment.³⁸ To harness the transformative potential of MGNREGS, the demand as well as sufficient supply for work need to be freed of the impediments of local politics.

Cash Transfers Through PM–Kisan

The idea behind cash transfers through PM–Kisan, with a scope of increasing rural income, is to provide liquidity in the hands of poor smallholder farmers. The extra income can provide for seasonal consumption needs and increase demand for the local economy, but its transformative potential can only be realized when the farmers are able to invest in productivity-enhancing technologies. Although such transfers are important, one must note that the scope of such programs is to address the temporary loss of income, while stagnant farm income is a longstanding issue and not the structural cause of rural poverty. Farmers are poor or at risk of poverty owing to their low-resource endowments. A landless rural labor force is poor because of insufficient economic opportunities and human capital endowments. A sufficient number of PM–Kisan transfers do open avenues for productivity-enhancing investments—in and out of agriculture. To have a transformative effect, rural anti-poverty transfers cannot avoid addressing the structural issues that hold back economic potential for farmers. Such transfers must be combined with rural livelihood missions (DAY–NRLM) to impart employable skills to the workers, especially women, to increase the quality of the labor force and its gender composition.

Urbanization of Poverty and Livelihood Risks

As India is urbanizing, the vulnerability of urban livelihoods is increasingly coming to the fore. A large part of the urban labor force engages in casual work, with unwritten job contracts, and therefore, no job security or employer-based social protection. As a result, the urban household consumption is found to be at a higher risk to idiosyncratic negative shock, relative to a rural household (Gupta and Kishore 2021). With the rise of a platform economy and “gig” work (firms such as Uber, Ola, Zomato, Swiggy, Flipkart, Urban Clap, and Dunzo being household names in Indian cities), employer–employee relationships are increasingly becoming unconventional, and workers are more vulnerable to transitory income losses. The plight of workers, including many migrants, in the wake of COVID-19-induced economic lockdowns and resultant loss of jobs, has been an unfortunate testimony to the economic fragility of urban livelihoods. Concerns have risen about the “urbanization of poverty,” a situation in which the overall headcount ratio of poverty declines both in rural and urban areas, but the total number of poor in urban areas increase.³⁹

Vulnerability of urban livelihoods is a by-product of the “stunted” structural transformation of the economy, wherein economic activity and urbanization are spatially concentrated, and service sector employment creates a gulf between a tiny proportion of high-skilled jobs with social security and a huge proportion of informal employment. Demographically, India’s urbanization, which theoretically creates more formal employment, is characterized by in-situ growth—natural population growth and reclassification of rural areas as urban, rather than the movement of labor from villages to towns and cities.⁴⁰ This subaltern urbanization—the morphing of larger villages into urban areas—without relying on agglomeration economies or “anchor industries” runs the risk of further reproducing the informality of the rural employment structure.⁴¹ Social welfare policies must expand the focus toward the urban poor and their sources of vulnerability, which emerge from the “informalization” of employment.

Labor informality in India is not only a characteristic of informal business enterprises but also of formal sector firms, which are increasingly hiring workers on a temporary or informal basis to reduce costs (Srivastava 2012; Abraham 2019; Bertrand et al. 2021). Lack of social support for such workers exposes them to the risk of falling into poverty in the aftermath of health shocks or loss of jobs, despite being classified as non-poor. What makes the issue of vulnerability of the urban labor force more acute is that many of these workers live in poor quality dwelling and squatter settlements, rendering them more vulnerable to a host of ailments, which leads to health-related expenditures. In this context, expanding the focus of social safety nets toward the working poor becomes even more important.⁴² It is important to note here that the public health insurance scheme was first launched to address the vagaries of employment and health for informal labor and was later scaled up to the larger population.⁴³

The policy document of the urban livelihood mission does recognize the multiple dimensions of urban poverty emanating primarily from three forms of vulnerability: residential (poor access to land, shelter, and basic services), social (deprivations graded along the axes of gender, age, caste, and religion; inadequate social protection; and lack of political voice), and occupational (precarious livelihoods, informal employment with lack of job security, and poor working conditions). It further states that while residential vulnerability could be addressed through low-cost housing programs like the Pradhan Mantri Awas Yojana (PMAY), occupational and social vulnerability can only be addressed through sufficient earning opportunities with access to credit and through promotion of skill development and self-employment, which are precisely where the DAY–NULM focuses. The impact of DAY–NULM, however, on urban poverty has not been noteworthy, despite its potential.

There is also a need to strengthen protection for workers in the organized sector. Social Security Code Bill 2020 is an attempt to provide workers in the unorganized sector, including platform or the gig economy, with social insurance (life and disability), health and maternity benefits, saving funds, and opportunities for upgrading skills. The bill, however, lacks a clear framework, outline, and legal mandates to ensure a “social minimum” for unprotected workers. These benefits also need to be expanded for all workers, including self-employed own-account workers who fall outside of social security in the informal sector.⁴⁴

Urban Employment Program

Since access to formal sector employment remains limited, the idea of job guarantee programs in urban areas, like MGNREGS, is being debated. Although this idea may not be entirely unprecedented, or even the most ideal solution, the debate around urban livelihood support is timely and critical. In the run up to the 2020 presidential election in the United States, Democrats, like Bernie Sanders and Alexandria Ocasio-Cortez, broached the idea of having employment guarantee programs. UK Prime Minister Gordon Brown had also debated the feasibility of such programs. In other European countries, Employment Wage Subsidy Schemes (EWSS) have been a common policy instrument that provides subsidy vouchers to approved private enterprises to hire workers who register for public employment programs. Similar urban employment program could therefore be introduced as an extension of the “right-to-work” entitlement for urban poor in India.

A recent symposium called for Decentralized Urban Employment and Training (DUET) as a wage subsidy in the wake of a high rate of unemployment rates in the country. Jean Drèze, one of the architects of the MGNREGS proposed it as a job stamps program, run by and for urban women at approved public institutions—schools, colleges, government departments, health centers, municipalities, neighborhood associations, urban local bodies, etc.—where the government would cover the wage bill based upon the statutory minimum wage (Drèze 2020, 2021). In the short run, this proposal would enable risk mitigation and an increasing female labor force participation; the long-term effects could be harnessed by using the same labor to strengthen urban local bodies and build capacities through imparting on-the-job training and providing apprenticeships, which would allow the beneficiaries to graduate into formal sector jobs or entrepreneurship ventures with necessary skills.⁴⁵ Certainly, there will be multiple issues to resolve, such as deciding upon the work and matching the labor with employers, within malfunctioning and less participatory urban local bodies, among others, which could prove to be an administrative nightmare to implement. The gravity of urban labor market precariousness, however, demands such a scheme, at least a pilot trial of it.⁴⁶ Urban employment guarantee schemes introduced in 2020 to fight the COVID-19-induced employment losses by the governments of Odisha, Himachal Pradesh, and Jharkhand, and the urban guarantee program in the state of Kerala existing since 2010, may provide useful insights over time (Pallath 2021).

Migrants and Access to Welfare Programs

Around 100 million people in India migrate internally from one place to another for work. At the same time, another 80–140 million workers move on a short-term or seasonal basis to work away from their homes every year. A large part of work-related migration is from rural to urban areas on account of differential wages, which attract labor to cities and towns. However, what often gets unacknowledged in this process of transformation is that migration is often a result of desperate economic situations, unemployment, indebtedness, or persecution of the marginalized.

The stunted structural transformation of the country has reproduced rural vulnerability in urban settings, albeit with different drivers. Low-income migrants in India are often relegated to the boundaries of city precincts where they are deprived of access to basic public amenities and opportunities. Living in poor quality housing conditions exposes them to various natural hazards and threats of dislocation. Flash floods and cyclones in the coastal cities of Mumbai or Chennai have exposed these vulnerabilities. While workers migrate for better economic opportunities, mobility also means reduced access to social safety nets, which are tied to their place of permanent residence. In fact, the association of social safety nets to their place of residence has been found to be a major hindrance to interstate migration in the country. Urbanization has been, therefore, also considered as “exclusionary” in the Indian cities.

If one follows the trajectory of migrants, underdeveloped states like Odisha, Bihar, Uttar Pradesh, and West Bengal are the source of migration to more developed states like Maharashtra, Gujarat, Delhi, and the southern states. Migrants, mostly short-term, in their places of work are deprived of their villages’ informal social insurance. Working in informal employment adds to the vulnerability of job losses and health care costs, despite earning a higher income than their rural counterparts. It was only the wake of the mass movement of labor into the hinterlands that brought the vulnerability of migrants into the national consciousness. Access to food subsidies through PDS has, therefore, been untied from the state of residence, and there has been some action on creating a database of workers—migrants and non-migrants—in an unorganized sector to provide them with welfare measures. Although such initiatives are laudable, unless there is concerted social welfare policy support for those in vulnerable livelihoods, a mere registry of workers would be futile.

Social Pensions for the Aging of India

India is getting older at a faster pace than it is getting richer (Jain and Goli 2021). According to UN projections, 20% of India’s population will be 60 years or above by 2050, with a large share of them being female and rural residents. Increased life expectancy and lowering fertility rates imply that growth of the elderly in the population is destined to reverse the current “youth dividend” in the coming few decades. An aging society, especially a relatively poorer one, brings a newer set of vulnerabilities. Research has shown that poverty is higher among the elderly once they are no longer capable of earning for themselves.⁴⁷ The provision of a life of dignity, care, and access to affordable health services for the older population, when they have little or no earnings of their own, ought to be an active scope of social welfare policy in the future.

The common practice of cohabitation with the elderly parents or in-laws, in an aging country, implies a further budget squeeze, with greater pressure on family members to spend and save for their elders, within already resource-constrained households. The rising burden of noncommunicable diseases and higher costs of medical care puts a higher burden on intra-household allocation of resources. A stronger focus on old age social pensions, therefore, is only expected to increase, as the elderly not only have high out-of-pocket health expenditures—a large share of them would have been either farmers, unemployed (mostly women), or employed in informal work during their working lives—with scarce savings and a meager provision of social security in later years.⁴⁸

Social pensions for the elderly are common in the developed world with high life expectancies, and therefore, greater shares of older populations. Developed nations have had sufficient time to craft social security policies and welfare institutions to address the old age vulnerability problem. A smoother process of structural transformation—as a large share of the population had access to social protection, financial institutions, and therefore, savings for later years—abetted such change.

India has a daunting challenge, as the country has aged relatively faster than a commensurate gain in economic strength. NSAP has been encouraging initiatives in this regard, but still falls short of the challenge. The Task Force on Restructuring NSAP in 2013, therefore, proposed multiple recommendations to the scheme, which includes a significant expansion in coverage (focus) and the stipulated pension amount. India has much to learn from countries like South Africa, Brazil, or China, which have successfully implemented generous social pension programs that have helped stem the skewed income distribution.⁴⁹ China’s New Rural Pension Scheme (NRPS), larger than MGNREGS in terms of coverage and financial outlay, has a near universal coverage of pensions that has not only enabled addition to household income but also lowered manually intensive, farm-related work for the elderly, and improved their food security, contributing to better health and lower mortality rates (Huang and Zhang 2021). Expenditures on noncontributory pension programs in Brazil and South Africa are around 1% of overall GDP of each of the two countries, similar to what the Indian government spends on PDS. The old age and disability pension program in India is much smaller.⁵⁰ There is a need to make noncontributory pensions more expansive—universally applicable with a commitment to index the pension to inflation, and an overhaul of the multiple set of independent schemes, such as by placement under the NSAP umbrella for greater effectiveness.

Conclusion

This chapter argues that social welfare programs in the future need to anticipate and adapt to changing economic situations. Path-dependent anti-poverty policies over many decades of the planning process have had modest success, mainly, because of a poor understanding of poverty. Social welfare policies have largely tried to remedy the symptoms of poverty, while not paying sufficient attention to the structural facet of poverty—underlying unequal resource endowment and the risks associated with it. The poor are deprived because of multiple hindrances to accumulation of productive capital, and therefore, no single anti-poverty social welfare program can be considered a silver bullet. Social welfare policies of the future need to initially take stock of the nature of socio-economic vulnerability and its long-term implications to determine its form, focus, and scope.

India’s stunted or atypical transformation suggests that although vulnerabilities associated with a rural economy will persist, changes in the economic and demographic structure call for a concerted action on the increasing risks to urban livelihoods, to financial protection to the aging population, and to the challenges of managing an informal workforce. This broad categorization of the economy has many layers; most important is the large subnational variation in the nature of transformation and its associated risks. The form of anti-poverty transfers in the future, therefore, must adhere to a design that is context-specific. Subnational developmental needs and priorities should be an important component of the design. A restricted focus on means-tested poor as the beneficiaries of many of the schemes is prone to targeting errors and escalates fiscal costs. Research as well as variation in the success of social safety nets in the country have clearly shown that more widely targeted or universal programs are more effective. Future policy, therefore, must not err on the side of narrow targeting of benefits. Lastly, the scope of anti-poverty policies must address vulnerabilities along multiple dimensions and not just income. Expanding the focus to non-income well-being indicators will push the collective goal further toward a transformative and resilient development process.