Reshaping social protection in India

  • Blog Post Date 12 April, 2024
  • Perspectives
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Ejaz Ghani

Pune International Center

As India has undergone a transformation in recent decades in terms of trends such as poverty reduction, food security and urbanisation, there is a need to also revamp the traditional social protection architecture. In this post, Ejaz Ghani proposes a four-pillar approach involving a focus on informally employed urban poor, incorporating gender differences in risks, streamlining existing schemes, and engaging the private sector.

India’s social protection is not in line with what is expected of one of the fastest growing, major economies in the world. India’s social protection schemes were formulated in the 1970s, when half of the population was chronically poor, the country suffered from aggregate food deficit, infrastructure had minimal rural penetration, technologies available for programme administration were rudimentary, and only around one-fifth of the population lived in urban areas. In the last three decades, however, the Indian economy has undergone a sea change, marked by trends such as poverty reduction, enhanced food security, and rapid urbanisation. Its traditional social protection system too needs to be transformed to match the fast pace of change and the expectations of people. The existing social protection architecture is not equipped to tackle the needs of a highly mobile and increasingly urbanised population. It is time to reflect on how India’s social protection can be reformed so that it can cope better with the new trends in poverty, inequality, and vulnerability of people in India.

In this post, I propose a four-pillar approach to scale up and modernise social protection in India: (i) support the rising number of urban poor; (ii) ensure women’s well-being and enable them to participate fully in society and contribute to the economy; (iii) streamline existing schemes; and (d) engage the private sector.

Urban poor and informal employment

First, urban poverty is a rising concern in India. Although India has reduced the aggregate number of people living in poverty, new sources of poverty and vulnerability have emerged. Particularly as India is one of the most rapidly urbanising countries in the world, the changing share of urban population raises some concerns.

Moreover, growing competition combined with increased market opportunities and limited resources have led to the emergence of a large informal economy. The unorganised sector employs more than 80% of the workforce, and more than 90% of the informal workers have no written contract, paid leave, and other benefits. More and more women are also joining the informal sector.

Unfortunately, the current social protection priorities remain heavily focused on reducing poverty in the rural areas and ignore the urban areas. India needs instruments for social protection that can deal with the fast pace of urbanisation and economic modernisation, and the new risks and vulnerability it brings. In particular, urban poor working in the unorganised sector face a significant risk of falling into poverty.

Social protection also needs to respond to middle-income groups among the urban population. For urban households that have made substantial progress, social protection programmes should provide insurance through instruments that minimise the impact of shocks to ensure households can consolidate their welfare gains. Yet, insurance-based interventions remain in their infancy in terms of coverage in the unorganised sector and a majority of the country’s population is uninsured against life’s major shocks such as illness, old age, disability, and death.

A greater emphasis should be placed on prevention strategies, helping urban people manage risks before these cause deprivation. Protection for the huge informal sector ought to assume priority, as also the enhancement of portable coverage for the large number of migrant workers. Thus, there is a pressing need to expand coverage of social pensions such as Atal Pension Yojana (a pension scheme focused on the unorganised sector workers) and health insurance programmes – in order to accelerate inclusion.

A gendered approach to social protection

A second priority is to scale up social protection for women that will enable them not just to survive, but to thrive. Most women struggle as they attempt to juggle vast responsibilities. This pressure is greatest on single mothers and poor women with limited education or training and little or no access to social protection. Women need not only employment opportunities but also social support that accounts for the true extent of their obligations. Social protection schemes can play a pivotal role in the economic empowerment of women. More inclusive social protection systems will contribute towards a more gender-equal society and economy.

The design and implementation of social protection programmes should explicitly address gender differences and gendered risks at scale. Social protection mechanisms should account for a wide range of gendered social and economic risks and behaviours. These include early marriage and childbearing, intra-household relations among women and men, societal norms, and safety and mobility constraints. There is a need to recognise how gender discrimination shapes the immediate needs and long-term interests of women. Accordingly, social protection in the labour market can be expanded, including the provision of social support such as childcare services.

Streamlining India’s social protection programmes

Third, India needs a new social contract that will modernise the social protection system and help make social assistance more adaptable and resilient. In recent years, climate change and the Covid-19 pandemic have changed the needs of risk groups and the demands on the social protection system, exacerbating existing vulnerabilities and creating new ones. Social protection systems need to adapt to help protect the groups that are most vulnerable to these shocks. This can include expanding access to social safety nets such as food security programmes, providing cash transfers, and investing in climate-resilient infrastructure and livelihoods.

While India spends significant resources, close to 4% of gross domestic product (GDP), on its core safety net programmes, the return to spending in terms of poverty reduction has been low. Lack of coordination and overlap in delivery of programmes (both within and across levels of government) contribute towards the reduced impact of social programmes on poverty.

A ‘one-size-fits-all’ programme will not work well with the growing spatial diversity in living standards and poverty within India. Institutional and absorptive capacity vary a great deal at the sub-national levels and in terms of household/last mile delivery, where there are institutional handicaps such as misidentification of beneficiaries and other implementation problems that adversely affect the poverty reduction impact of social protection programmes. Lack of financial and human resource capacity at the block and gram panchayat levels worsens the challenge of service delivery.

Besides, the number of social protection programmes needs to be reduced. Currently, India has nearly 440 schemes for direct benefit transfer. There is a glaring need for a strategy on how these different schemes can be consolidated in a way that preserves fiscal balance. The solution to a fragmented system of schemes cannot be to add a new income transfer scheme, without consolidating existing programmes. Programmes such as the public distribution system (PDS), Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), and Ayushman Bharat (public health insurance for the poor) could serve as the ‘three pillars’. Beyond these three pillars, states could receive additional transfers and implement state-specific programmes tailored to their specific requirements.

Engaging the private sector

Fourth, India needs to scale up the role of the private sector in social protection system. India is now a rapidly developing middle income country, and there is a huge potential for using public private partnerships (PPP) to maximise finance for social safety nets programmes. 'Build and operate' by the private sector is already common in physical infrastructure such as highways. Social infrastructure such as healthcare facilities or affordable housing can also be constructed under PPPs, with the model stretching to include operation by the private partner. With a transfer of operational risks from the State to the private sector, the private sector would be encouraged to take a longer-term view of the project as well as to bring innovations in this space. Further, PPPs broaden the pool of potential investors, hence maximising available finance for the country’s social protection architecture.

In sum, India's social protection system needs to be revamped to serve the risks of pandemics and climate change, rapid urbanisation, and structural transformations in the labour market. A modernised social protection system can tremendously benefit the poor, create more jobs and make growth significantly more inclusive. 

The views expressed in this post are solely those of the author, and do not necessarily reflect those of the I4I Editorial Board. 

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