October 16, 2013
Towards 2050: Social Protection
By Nitin Desai
In 2050 India will be a capitalist economy with the bulk of the economy under private sector management. The goals of poverty elimination and social protection cane no longer be reached by relying on deploying vast amounts of budgetary resources and public sector benevolence. A much more structured policy oriented approach that combines capitalism and social justice will be required.
Take first the issue of poverty. The relationship of economic growth and poverty reduction is clearly positive as suggested by the substantial reduction during the high growth period from 37.2% in 2004-05 to 29.8% in 2009-10. Over a longer period of two decades the decline has been about 1% per year.
However one cannot rely on growth alone for poverty reduction. One needs policies for inclusion particularly education, access to credit and other resources. Moreover some things done for growth are harmful for poverty alleviation like land acquisition which has already posed problems and may pose even bigger ones as the country urbanises and industrialises. Relying on growth alone will not be sufficient also because much of the poverty that remains involves addressing left out regions and left behind groups concentrated in some areas or population groups e.g. ethnic minorities. Such left out groups can acquire a destabilising political salience as we see now in the tribal Naxal areas.
The challenge of reaching left out regions can be addressed if the locus of growth shifts towards the Northern states where the bulk of poverty is concentrated. This is also the area where the bulk of the so called demographic dividend will accrue and it makes eminent sense, even from a growth perspective to ensure that states like UP, Bihar, Jharkhand, Madhya Pradesh and Rajasthan become the new centres of rapid growth. This involves policies for promoting growth, strengthening infrastructure and building up skills rather than large fiscal hand-outs for employment schemes or food subsidies or farm loan waivers. These huge drafts on the budget may have a role now (though even that is questionable). But they are not the way to address poverty related challenges in 2050.
The challenge of reaching left out groups like Tribals, Dalits and Muslims is sought to be tackled these days through reservations in education and public sector jobs. This may be desirable for now when the representation of these groups in these areas is well below their proportion in the population and their potential. Hopefully by 2050 the situation will be more equal and policies can focus more on issues like skill development and credit access than legal reservations. However the real challenge is the political one of ensuring that these left out groups are able to influence the democratic process to be more sensitive to their concerns. This has already happened to some extent with Dalits and Muslims. But the Tribals lack a strong enough political voice at the Centre and any political party that chooses to address this will be doing a major national service.
The other related issue that will become more acute is to protect people near the poverty line (on both sides of it) from vulnerability to sudden demands like catastrophic health expenditures or recovery from disaster. A related issue is that labour intensive micro enterprises are more vulnerable to economic downturn and will need some form of social insurance. This vulnerability to economic downturns will also affect wage labour whose access to agriculture back in their native village as a fall back in bad times will come down as the numbers of the non-agricultural work force increase and as more and more of them are second or third generation urban residents. The vulnerability to health hazards from pollution will be an additional dimension.
By 2050 India, like every capitalist economy, will need a system of social insurance covering health care, unemployment and old age needs.
Middle income countries of today spend roughly 6 %of their GDP on health care. This is about 50% more than the current proportion. This means that with the GDP growing at 6% health care spending will go up fifteen-fold. If borne largely by households, as at present, this is a substantial burden, particularly when near poverty line households are faced with catastrophic health expenditures.
By 2050 we will have to design a viable system of health care based on insurance for pooling of risks and public provision for health interventions, like immunisation, that have large public benefits. No country has so far successfully designed a scheme that is financially viable and that provides the requisite level of health care protection. We will have to design something that will probably involve a mix of private care for routine medical needs, public provision where public health issues are involved, insurance systems to protect against major illnesses, a geographically more diffuse availability of facilities so as to reduce the cost and inconvenience of travelling for health care and a drug policy that ensures affordable medicines.
In 2050 the bulk of non-agricultural employment will be in the private sector. Traditional systems of fall back in bad times like family support will no longer provide the work force with the protection against economic vulnerability they need. India will hopefully also be at near full employment. Hence some form of unemployment insurance will be necessary both for wage employees and the self-employed in micro enterprises.
Both health insurance and unemployment insurance will involve both government and the private sector. Indian employers will have to accept that the survival of a capitalist system, on which they depend, requires this commitment from them for social protection of their workers.
Old age pensions is more of a public provisioning issue. To some extent one relies on people saving for their retirement and the role of public policy is to correct the myopia which stops them doing enough of it. But beyond this some form of old age protection for those whose working incomes were never sufficient for this purpose will be necessary.
By 2050 India will have the means to provide the social protection to the vulnerable as a safety net that protects them from a catastrophe. The challenge is to learn enough from the experiences of other more advanced capitalist economies to design a system that delivers social protection without running into intractable budgetary problems.