As the finance ministry gears up to present Budget 2025-26 on February 1, it has reiterated its commitment to improving the quality of public spending while strengthening the social security net for the poor and needy. The forthcoming budget is expected to take crucial steps toward fortifying the nation’s macroeconomic fundamentals and ensuring overall financial stability. A key target is reducing the fiscal deficit to below 4.5% of GDP by FY 2025-26.
In the face of global economic turbulence, marked by inflationary pressures and escalating geopolitical conflicts, the government must retain flexibility in its fiscal policies to effectively respond to potential adverse outcomes. This balancing act between fiscal prudence and social welfare is critical to navigating these challenging times.
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Is India’s social security net adequate
The United Nations Declaration of Human Rights affirms that social security is a fundamental human right. However, India’s social protection landscape remains inadequate. A 2022 report by the International Labour Organisation criticised India for spending too little on social protection, especially given that informal employment constitutes nearly 90% of the workforce. Recent crises, such as the COVID-19 pandemic, have underscored the urgent need to expand welfare measures for vulnerable communities.
Despite some progress, the country’s social protection architecture is fragmented. Vulnerable groups, including children and the elderly, are often overlooked in favour of politically expedient beneficiaries. A notable example is gig workers, who represent a growing segment of the workforce.
As southern states grapple with declining fertility rates and an aging population, the rising costs of old-age pensions are emerging as a significant concern. Many southern states offer among the highest monthly pensions for senior citizens in India, encompassing a substantial portion of their population.
With India’s elderly population projected to reach 11.4% of the total population by 2026, up from 8.4% in 2011, southern states are facing a significant demographic shift. While Uttar Pradesh has the largest absolute number of senior citizens (over 2.18 crore), Kerala boasts the highest proportion of elderly residents at an estimated 18.69% in 2026. In fact, five of the top ten states with the highest proportion of senior citizens are located in the southern region of India. State governments need to gear up for challenging times.
While the concept of Universal Basic Income (UBI) has been widely debated in India, its feasibility and desirability remain subjects of ongoing discussion. Proponents argue that UBI could potentially replace inefficient welfare schemes and provide a more equitable safety net. However, implementing a full-scale UBI in India presents significant challenges.
A more pragmatic approach might involve exploring a modified, less ambitious version of UBI, building upon existing programs like PM-KISAN. A modest universal income transfer, potentially around 1% of GDP per capita, could serve as a foundational social safety net. This will reduce administrative costs and minimise exclusion errors.
Addressing the needs of gig workers
The gig economy is projected to grow significantly, with gig workers expected to account for 4.1% of income and 6.7% of the non-agricultural workforce by 2029-30, according to a NITI Aayog report. While some states, such as Karnataka, have introduced measures like the Platform-based Gig Workers (Social Security and Welfare) Bill, 2024, these efforts fall short of providing gig workers the status and security of formal employment.
National-level legislation is urgently needed to set minimum wages, establish reasonable working conditions, and extend comprehensive social security to gig workers. The delayed implementation of the Social Security Code 2020 further highlights the gaps in India’s protection framework. Addressing these challenges is crucial to building a robust safety net consistent with India’s developmental aspirations.
Women-centric social welfare programs
Many of India’s social welfare initiatives target women, reflecting their political and economic importance. However, these programs often lack legal backing and are marred by a paternalistic approach. Without strong legal frameworks, these schemes remain vulnerable to arbitrary changes or discontinuation. For instance, states with low political competition, such as Gujarat, are less likely to introduce new welfare programs, leaving gaps in coverage.
Sustainability and inclusivity must underpin social welfare initiatives. Political competition can sometimes safeguard continuity, as seen in Rajasthan and Chhattisgarh. However, reliance on political dynamics is not a reliable long-term solution.
Social welfare versus populism
A 2023 Crisil report revealed that social welfare spending across 11 states rose from 1.2-1.3% of GSDP in 2017-18 to about 1.6% in 2022-23. Despite this increase, many programs are politically motivated and fail to deliver meaningful improvements in people’s lives.
The RBI recently criticised states for prioritising populist measures over critical investments in healthcare, education, and infrastructure. For example, states like Himachal Pradesh, Delhi, and Chhattisgarh have announced new income transfer schemes for women, despite facing severe fiscal constraints.
Building a comprehensive welfare system
To create an inclusive welfare system, India must address multiple priorities.
Universal health coverage: Ensure accessible and affordable healthcare, including preventive care, treatment, and hospitalisation.
Income security: Provide adequate income support through pensions for the elderly, unemployment benefits, and disability allowances. Ensuring a living wage for all workers, including those in the informal sector, is essential.
Food and housing security: Strengthen programs like the Public Distribution System (PDS) and mid-day meals, while addressing existing gaps. Nutritious food and affordable housing must be integral to the social security framework.
Child welfare programmes: Enhance access to education and healthcare for children, ensuring their holistic development.
India’s social security landscape remains fragmented, with limited coverage for many, especially in the informal sector. A truly inclusive system requires equity, universality, and sustainable implementation. By prioritising these elements, the government can ensure welfare programs genuinely uplift society rather than serve as mere political tools.
The upcoming Union Budget presents an opportunity to redefine India’s approach to social welfare. By addressing the gaps in social protection and focusing on sustainable, inclusive policies, the government can lay the foundation for a resilient and equitable society. Strengthening the social security net is not just a fiscal responsibility but a moral imperative to ensure the well-being of all citizens.