WELFARE SCHEMES – BRIDGING THE DEEP INCOME DIVIDE

 

Economic growth and social welfare are interdependent for India's progress, as each one fuels and sustains the other. Growth provides the resources for welfare, and welfare builds the human capital necessary to sustain long-term, inclusive growth. A balanced, two-pronged strategy is essential for achieving equitable and sustainable national development.

Welfare schemes should never be confused with election freebies, which are the manifestations of fiscal irresponsibility of an incompetent government. I have written about election freebies in one on my previous blogs, and you can read it by clicking: https://surajitbrainwaves.blogspot.com/2022/04/the-malady-of-election-freebies.html

Welfare schemes are a moral, political, and economic necessity of our journey towards Vikasit Bharat. This is our answer to the question of inequality.

 

The importance of economic growth

Economic growth, measured by a rise in a country's Gross Domestic Product (GDP), is crucial for national progress for several reasons.

• Generates resources for development: Growth increases national income and tax revenues, allowing the government to invest in essential public services like infrastructure, education, and healthcare.
• Reduces poverty: Growth leads to higher output, which in turn creates employment opportunities and increases average incomes, lifting millions out of poverty and significantly improving their living standards. In the last 10 years India has lifted 27 million people out of poverty.
• Drives innovation: Higher profits encourage private firms to increase investment in research and development (R&D), leading to technological advancements that enhance productivity and global competitiveness. A growing economy encourages businesses to invest, innovate, and expand to meet future demand. This creates a virtuous cycle of investment and growth. 
• Enhances global standing: A strong, growing economy boosts a country's influence and competitiveness on the global stage. Countries can make independent geo-political choices that suit their national interest and not be a yes man to superpowers.
• Funds for welfare programs: High economic growth generates more tax revenue for the government. This increased revenue can be invested in welfare programmes and better social security schemes.

 

The importance of Social Welfare

Despite the benefits of economic growth, it is insufficient on its own. Welfare policies are necessary to ensure that the benefits of progress are shared across all sections of society.

• Promotes human development: Welfare schemes focused on health, education, and nutrition improve citizens' overall well-being, which enhances human capital and labor productivity. The free ration to 80 million people in India is a big step towards this goal. Programs focused on health, nutrition, education, and skill development (like the National Health Mission and Skill India Mission) create a healthier and more capable workforce, increasing overall productivity.
• Alleviating poverty and inequality: While growth can reduce poverty, it doesn't guarantee an equal distribution of wealth. Targeted welfare schemes, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), provide a safety net for vulnerable populations and help reduce income disparity. When mothers receive monthly DBT of Rs. 500 for two years after childbirth in Jharkhand, it was a 10% increase in family income which was spent in food improving the entire family's health as well as the child's cognitive and motor skills. Needless to say that it was a big step towards gender equality.
• Ensures social and political stability: By addressing poverty and inequality, welfare programs help reduce social tensions and discontent, fostering greater political stability. Persistent inequality and lack of access to basic services can lead to social unrest. By addressing the needs of marginalized communities and ensuring social justice, welfare policies foster a more cohesive and stable society.
• Provides a safety net: Welfare acts as a crucial safety net for vulnerable populations during economic downturns, natural disasters, or other crises. Singapore prime minister Mr. Tharaman Shanmugaratnam has introduced a subtle difference between safety net, and a better alternative, trampoline. Both protect people when the fall but the net can trap them but the trampoline bounces them back. Many of our welfare schemes like farm loan waiver, agriculture subsidies tie people to low productivity farming and are like the net. A direct benefit transfer in their bank account, or offering free skill development however enable people to migrate to higher productivity jobs and are like trampoline.
• Broadening economic participation: Schemes that promote financial inclusion, like the Pradhan Mantri Jan Dhan Yojana (PMJDY), enable more people to access credit and banking services. This expands the consumer base and empowers entrepreneurs at the grassroots level, contributing to broader economic growth.

 

The symbiotic relationship between growth and welfare

Growth and welfare are not mutually exclusive but rather complementary forces that create a virtuous cycle of development.

• Growth funds welfare: Economic growth provides the revenue stream necessary to fund government welfare programs. As the economy expands, the government can allocate more resources toward welfare initiatives without jeopardizing fiscal health.
• Welfare enables growth: Investments in welfare, particularly human capital development through education and healthcare, increase the skills and capabilities of the workforce. A healthier, more educated population is more productive, innovative, and better equipped to drive future economic growth.
• Inclusive growth is sustainable growth: A development model that prioritizes equitable distribution of wealth and opportunities creates a larger, more skilled, and empowered consumer base, which in turn fuels further economic expansion. Inclusive growth is therefore more sustainable and resilient in the long run than growth that benefits only a select few.
• Empowering the marginalized: Inclusive growth moves beyond just high GDP numbers to focus on the quality of life, empowerment, and access to basic services for everyone, regardless of their background.
• Sustainable development: A strategy that invests in people, especially the poor and marginalized, is essential for sustainable and long-term development. Empowering these groups enhances their productivity, ultimately contributing to a more robust economy.
• Fulfilling a constitutional vision: This approach aligns with India's constitutional vision of securing social, economic, and political justice and minimizing inequalities. India's progress is measured not just by its GDP but by its Human Development Index (HDI) and other welfare indicators. 

 

India's approach to balanced progress

India's development model explicitly seeks to balance growth with social responsibility, often referred to as "inclusive growth". 

• Government initiatives: The government has implemented numerous schemes, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and the Pradhan Mantri Jan Dhan Yojana (PMJDY), to provide employment, ensure financial inclusion, and mitigate the disproportionate effects of rapid growth.
• Policy framework: As reflected in the approach of organizations like NITI Aayog, India's strategy is to enable private initiative and competition while ensuring equal opportunity for all through carefully designed policies. The goal is to maximize the benefits of growth while minimizing its negative side effects.

The debate should not be so much on the amount of GDP spent on welfare but on its effectiveness. They can be powerful engines of both equity and efficiency if they are planned well, targeted properly, executed timely and regularly, monitored periodically for its short term and long term benefits and altered timely to meet newer challenges.

 

Where do we go wrong?

We go wrong when welfare schemes are not the offspring of a deep ideological thought but of electoral anxiety. Every election witnesses a flurry of welfare schemes or electoral freebies. Tamilnadu pioneered this are when Smt. Jayalalitha, a former Chief Minister, offered everything except a spouse to her voters – television, mixer-grinder, fans, laptops, goats, rice and wedding gold. West Bengal, Delhi, Madhya Pradesh, Telengana, Karnataka and now Bihar is becoming more and more fiscally irresponsible – the incumbent Chief Minister offering Rs. 10,000 each to 1.27 crore (12.7 million) women and the aspirant matching it with one government job fr every household! Even if the new government jobs pay Rs. 15,000 a month, the budget will surpass the Union budget! These can not be well directed welfare schemes because they are neither well thought, nor well planned, nor prior budgeted and fiscal discipline is being sacrificed at the alter of electoral arithmetic. Such fiscal hara-kiri keeps the states perpetually poor and in debt.

How can we improve?

·        There are many overlapping schemes of central and state governments. Though politically difficult, but consolidating them into fewer, better funded, more coherent trampoline programmes will increase their reach.

·        Sporadic announcements before elections and erratic delivery after elections can not be helpful. Welfare should arrive in time every time like the Kisan Samman Nidhi.

·        Welfare should not be forced upon them but the beneficiary must have the choice of choosing the welfare that will be most useful - input subsidy or income support. This will offer them an opportunity to migrate from non productive farming to the more productive urban jobs.

 

Economic growth and social welfare are both crucial for India's progress because they create a self-reinforcing cycle of development, leading to long-term prosperity and stability. Growth provides the resources to fund welfare programs, while welfare programs empower citizens, creating a more productive workforce that fuels further growth. 

The welfare programme should not be just a safety net, because a net like a farm loan waiver, can trap the receiver into an low productive farming.  It should be like a trampoline like a Direct Benefit Transfer and skill development, which can bounce them back to a better and more productive job and a brighter future. Improving their design and delivery of welfare is essential so that this responsible fiscal commitment translates to maximum impact. Done right, welfare can protect the vulnerable, empower upward mobility, and boost productivity. This is the only way to achieve Vikasit Bharat.