India underperforms in social spending, despite UPA largesse

India may not be spending enough on anti-povery schemes, suggests an ADB index. But the report is not a vindication of NGO positions either.

Seetha July 08, 2013 11:29:10 IST
India underperforms in social spending, despite UPA largesse

The United Progressive Alliance (UPA) government may go to town – en route to next year’s general elections – thumping its chest about it’s so-called pro-poor welfare policies, but that hasn’t helped push the country up in regional welfare rankings.

India ranks 23rd in the Asian Development Bank’s Social Protection Index (SPI) – a ranking of 35 countries spanning across Central and West Asia to East Asia and the Pacific region. Even among the 19 countries of the same income level – the lower middle-income group – India ranks 12th, below Philippines and Sri Lanka.

The SPI set out in the report, The Social Protection Index: Assessing Results for Asia and the Pacific, measures the level of social protection that countries offer to the poor and economically vulnerable groups. Based on 2009 data, the SPI is arrived at by dividing total expenditures on social protection by the total number of intended beneficiaries of all social protection programmes. The report explains that for assessment purposes, this ratio of expenditures to beneficiaries is compared with poverty-line expenditures. An SPI of 0.100, for example, indicates that “total social protection expenditures (per intended beneficiary) represent 10 percent of poverty-line expenditures. The higher this index number, the better a country’s performance.”

India underperforms in social spending despite UPA largesse

File photo of Indian homeless eating food at a feeding programme for the poor in Hyderabad. AFP

India’s index number is 0.051, with social sector spending at 1.7 percent of GDP. The spending in the three countries that topped the index – Japan, Uzbekistan and Mongolia – was 19.2 percent, 10.2 percent and 9.6 percent respectively.

China, which ranks 12th, spend 5.4 percent of GDP on social protection. Singapore (rank 6) and Malaysia (rank 8) spend 6.1 percent and 3.7 percent of GDP respectively on social protection.

South Asia as a whole had the lowest SPI among the five regions the 35 countries were split into: Central and West Asia, East Asia, Pacific, South Asia and Southeast Asia. Perhaps this was because it is also the poorest region in the Asia-Pacific. The average social protection spending by the eight countries that comprise the region – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal,  Pakistan and Sri Lanka – is only 3.2 percent of GDP. Within the region, Sri Lanka (3.2 percent), Maldives (3 percent) and Nepal (2.1 percent) had higher social sector spends.

The report breaks up social protection into three categories: social insurance (contributory schemes), social assistance (transfers in cash or kind, health benefits) and active labour market programmes (skill development/training programmes, cash or food-for-work schemes).

One can see the poverty industry immediately using this report to get the government to hike welfare spending. Especially since the report itself points out that many countries – especially the middle income ones – “could significantly boost their expenditures in this area”.

However, the report does not conclusively prove that higher social protection spending leads to better outcomes on poverty. It doesn’t relate the spending figures to the poverty indicators of the countries in the index. It does mention the per capita GDP, but that doesn’t mean much since Uzbekistan with $1,187 as per capita GDP has a social protection spending of 10.2 percent, while Singapore, with a per capita GDP of $ 35,514 spends much less – 3.5 percent of GDP.

The report observes, though, that the proportion of the extremely poor population in all the countries has become “progressively smaller” and that poverty reduction programmes have been targeting “an ever-smaller share of the population”.

Clearly, then the focus of governments should be to pursue growth. Not only will that bring more people above poverty, it will also help achieve the report’s suggested target of government revenues touching 20 percent of GDP, necessary for increased spending on social protection.

The report points out how the poor and the non-poor benefit from the three categories of social protection. It finds that in the richer countries, the non-poor benefit more from social insurance (natural considering these countries have a larger formal sector, and insurance or related programmes work better where there is regular employment). The poor benefit more from social assistance programmes and labour market interventions. India leads in the last category, thanks to the Mahatma Gandhi National Employment Guarantee Act (MNREGA), with both the poor and the non-poor benefiting more from such interventions. In South Asia, it is the labour market interventions – through cash or food for work schemes – that account for a larger share of overall social protection measures.

What the report draws attention to is that while social insurance benefits those in the formal sector and social assistance and labour market interventions benefit the extremely poor, there is a significant "missing middle" that receive none of these benefits. They are not part of the formal sector and not poor enough to access the latter two. “Expanding social protection to cover the common risks of such households represents a major challenge for policy makers,” the report says.

That will require a paradigm shift in India’s approach to social welfare, something a poll-bound UPA will not have the time or inclination to deal with. Perhaps this can be the agenda of any new regime that comes to power next year.

Seetha is a senior journalist and author


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