THE CONTEXT: The Mahila Samman Yojna is a cash transfer initiative launched by the Aam Aadmi Party (AAP). It provides monthly assistance of ₹1,000 to women and promises to increase it to ₹2,100 if re-elected. This scheme has sparked a heated debate on the efficacy and implications of cash transfers and subsidies in India, with critics labeling them populist measures that could jeopardize state finances. At the same time, proponents highlight their potential to empower marginalized groups, particularly women.
CASH TRANSFERS AND WOMEN EMPOWERMENT:
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- India’s Ranking in Global Gender Gap Indices: India’s performance in the Global Gender Gap Report 2023 has slightly improved, ranking 127th out of 146 countries, up from 135th in 2022. However, the country still faces significant challenges in economic participation, achieving only 36.7% parity in this domain.
- Declining Female Workforce Participation: Despite improvements in educational attainment, female labor force participation in India remains critically low. The participation rate has stagnated, with many women facing barriers such as inadequate transportation, safety concerns, and societal norms restricting their mobility.
- Impact of Cash Transfers on Women’s Access to Opportunities: By providing direct financial support, these initiatives can alleviate economic pressures and enable women to invest in education, health, and entrepreneurship. Studies indicate that such transfers lead to increased spending on essential services, thereby improving overall quality of life and promoting gender equality.
THE SIGNIFICANCE:
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- Social Safety Net for Lower and Middle Classes: Cash transfers act as a critical social safety net, directly addressing income inequality and providing financial stability to vulnerable populations. They are particularly impactful for the lower and middle classes, who lack access to institutional credit or formal social security mechanisms.
- Boosting Consumption: Cash transfers increase beneficiaries’ purchasing power, enhancing their ability to spend on essentials such as food, healthcare, and education. This multiplier effect in local economies by stimulating demand for goods and services. A study by the International Labour Organization (ILO) highlights that every dollar spent on cash transfers generates an additional $1.30 in economic activity through increased consumption and investment.
- Global Trends: In developing nations, cash transfer programs constitute an average of 2% of GDP, with evidence showing that recipients prioritize spending on nutrition, healthcare, and education. Research from the Food and Agriculture Organization (FAO) shows that beneficiaries of cash transfers spend predominantly on improving their quality of life, disproving concerns about misuse. Delhi’s free bus rides scheme revealed a 24% increase in paid employment among women from marginalized communities, highlighting how subsidies can enhance economic participation.
COMPLEMENTING DEVELOPMENTS:
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- Electricity Distribution Network Improvements: Delhi now has one of the lowest aggregate technical and commercial (AT&C) losses in India, at around 8%, compared to the national average of 15-20%. This has enhanced energy efficiency and reduced power outages, especially benefiting lower-income households.
- Delhi Metro Expansion: Metro systems reduce carbon emissions by promoting public transit over private vehicles. DMRC’s initiatives align with global best practices in green mobility. The expansion supports last-mile connectivity, reduces traffic congestion, and promotes sustainable urban mobility.
- Water and Sewer Pipeline Expansion: Approximately 10,000 km of water pipelines and 4,500 km of sewer pipelines have been laid across various colonies. This ensures access to basic sanitation facilities and reduces health risks like waterborne diseases.
- Delhi’s Fiscal Model: Delhi’s revenue surplus has increased capital expenditure on health, education, and public infrastructure without excessive borrowing. The surplus has been achieved despite significant spending on subsidies (e.g., free electricity and water) and infrastructure development.
- Reduction in Debt-to-GDP Ratio: Delhi’s debt-to-GDP ratio has reduced from 7% to 4% over the last decade, making it one of the lowest among Indian states. States are expected to maintain a fiscal deficit of 3% of GDP, stabilizing their debt-to-GDP ratio at around 30%.
CRITICISM AND COUNTERARGUMENTS:
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- Comparison with Corporate Loan Write-offs: Indian banks have written off loans worth ₹12.3 lakh crore over the past decade, with ₹1.7 trillion written off in FY24 alone. These write-offs primarily benefit large corporate borrowers and are justified as measures to clean up bank balance sheets and reduce gross non-performing assets (NPAs). However, recovery rates remain abysmally low, with only 15-20% of written-off loans recovered.
- Corporate Tax Cuts and Their Impact: In 2019, the government introduced Section 115BAA, reducing the corporate tax rate for domestic companies to 22% (effective rate: 25.17%), down from the earlier flat rate of 30%. This was the largest corporate tax cut in India’s history. The move aimed to attract investments and boost economic growth but resulted in an annual revenue loss of approximately ₹1 lakh crore.
- Regressive Subsidies vs. Cash Transfers to the Poor: Corporate tax cuts and loan write-offs are often termed as “regressive subsidies” because they disproportionately benefit wealthier sections of society while imposing fiscal burdens on the state. Direct cash transfers like the Mahila Samman Yojna target vulnerable populations directly, ensuring that resources reach those most in need.
THE WAY FORWARD:
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- Adopting a Mixed Economy of Welfare: A balanced approach involving state-led welfare schemes and private sector participation can enhance efficiency and reach. For instance, the collaboration between the government and NGOs in the Swachh Bharat Abhiyan significantly improved sanitation outcomes by leveraging grassroots networks. PM Mudra Yojana encourages private entrepreneurship while ensuring state-backed financial support.
- Targeted Subsidies with Robust Monitoring Mechanisms: The DBT platform, supported by biometric verification, has been instrumental in curbing inefficiencies in welfare delivery. The success of the PM Kisan Samman Nidhi, transferring ₹6,000 annually to farmers, highlights the importance of targeted interventions. Expand DBT to all welfare schemes while integrating Artificial Intelligence for real-time monitoring. Improve financial literacy among beneficiaries to ensure effective utilization of funds.
- Rationalizing Corporate Subsidies: Introduce performance-linked incentives (PLI) for corporates to ensure subsidies are tied to measurable outcomes such as job creation or innovation. Implement stricter recovery mechanisms for wilful defaulters to prevent misuse of public funds.
- Balancing Welfare with Fiscal Prudence: Prioritize capital expenditure over revenue expenditure for long-term economic benefits. Conduct periodic audits of welfare schemes to assess their fiscal impact.
- Inclusive Growth through Saturation Approach: A saturation approach ensures that every eligible individual benefits from welfare programs, reducing inequality at the grassroots level. The Union Budget 2024-25 emphasizes this approach through programs like PM Vishwakarma and PM SVANidhi. The saturation approach under the PM Awas Yojana, which provided over 3 crore houses, has ensured dignified shelter for marginalized communities.
- Institutionalizing Accountability Mechanisms: Establish a dedicated body under the Comptroller and Auditor General (CAG) to evaluate the annual cost-benefit analysis of subsidies. Introduce sunset clauses for welfare schemes and corporate incentives, ensuring periodic review and recalibration based on performance metrics. NITI Aayog advocates for outcome-based budgeting to ensure that public funds are utilized efficiently.
THE CONCLUSION:
A balanced approach in welfare schemes requires harmonizing social justice with fiscal prudence. India can achieve inclusive growth by adopting targeted interventions, leveraging technology, and institutionalizing accountability mechanisms while safeguarding its fiscal health. This aligns with constitutional principles under Articles 38 (social justice) and 39(b) (distribution of resources), ensuring that economic progress translates into improved lives for all citizens.
UPSC PAST YEAR QUESTION:
Q.1 Development and welfare schemes for the vulnerable, by its nature, are discriminatory in approach. Do you agree? Give reasons for your answer. 2023
Q.2 Reforming the government delivery system through the Direct Benefit Transfer Scheme is a progressive step, but it has its limitations too. Comment. 2022
MAINS PRACTICE QUESTION:
Q.1 Direct Benefit Transfers (DBTs) have been hailed as a progressive step in reforming welfare delivery systems. Analyze their potential to reduce corruption and improve efficiency while highlighting the challenges in their implementation.
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