Considering the adoption of income transfer schemes as a component of expanding social protection, assess their effectiveness in reducing poverty and enhancing the quality of life for vulnerable households.

Why?

In the run-up to 2024 general elections, the Congress has mooted modified basic income schemes, “Yuva Nyay” and “Nari Nyay”.

Approach:

• Introduce your answer by defining income transfer schemes and their significance in India’s social protection framework, addressing socio-economic vulnerabilities.
• In the main body, discuss their role in poverty reduction through direct financial support and economic stimulation, detail enhancements to quality of life like health and education benefits, and outline challenges including administrative inefficiencies and the risk of dependency.
• Conclude by affirming the importance of income transfer schemes in social welfare, while emphasizing the need for addressing structural poverty.

Answer:

Income transfer schemes are financial programmes designed to provide direct cash assistance to vulnerable households, aiming to alleviate poverty and enhance social protection. These schemes are pivotal in redistributing wealth, targeting the impoverished, and acting as a cushion against economic shocks. In the Indian context, such schemes have gained prominence as part of a broader social welfare architecture, responding to the diverse needs of a population marked by high levels of informal employment and socio-economic vulnerabilities.

Role of Income Transfer Schemes in Reducing Poverty:

• Direct Financial Support: These schemes offer immediate relief to impoverished households by providing them with disposable income. This financial aid helps in covering basic needs, thereby reducing poverty levels directly.
  • PM-KISAN provides ₹6,000 per year to eligible farmer families.
• Economic Stimulus: By injecting cash into the economy, income transfer schemes stimulate demand for goods and services, potentially leading to job creation and economic growth.
• Targeted Assistance: The specificity of income transfer programmes ensures that aid reaches those in need, making them a cost-effective method of poverty alleviation compared to general subsidies.
• Incentive for Financial Inclusion: Many income transfer schemes require beneficiaries to have bank accounts, thereby encouraging financial inclusion among the marginalized sections of society.
  • During Covid-19, government announced the transfer of three instalments of Rs 500 each to women holding Jan Dhan Yojana bank accounts.

Enhancement of Quality of Life:

• Improved Nutritional Intake: The additional income allows households to purchase a greater quantity and variety of food, leading to improved nutrition and health outcomes. This is particularly vital for children’s growth and development.
• Access to Healthcare: With more disposable income, families can afford to seek medical attention when needed, reducing the incidence of untreated illnesses and preventing minor health issues from escalating into serious conditions.
• Educational Benefits: Financial support to families reduces the necessity for child labour, encouraging school attendance and contributing to human capital development and a break in the cycle of poverty.
• Women’s Empowerment: Schemes targeting women, such as the “Ladli Behna”, have shown to increase women’s control over household finances, contributing to their empowerment and the overall family welfare.
• Social Inclusion: By providing the means to participate more fully in society, income transfers can reduce social exclusion and improve the sense of belonging among vulnerable populations.

Challenges and Limitations of Income Transfer Schemes:

• Administrative and Operational Issues: Identifying the right beneficiaries remains a challenge, leading to inclusion and exclusion errors. Moreover, inefficiencies in the distribution mechanism, such as delays in payments and bureaucratic hurdles, can significantly reduce the effectiveness of these schemes.
  • Delays in disbursing MGNREGA wages, affects the scheme’s reliability as a social safety net.
• Dependency Risk: There’s concern that regular cash transfers might discourage beneficiaries from seeking employment, creating a dependency syndrome that could affect the local labor market dynamics.
• Fiscal Sustainability: With an increasing fiscal deficit, questions arise about the sustainability of expanding social welfare schemes without corresponding growth in revenue.
• Limited Impact on Structural Poverty: While income transfer schemes provide immediate relief, they do not address the root causes of poverty, such as lack of education, poor healthcare, and unemployment.
• Paternalistic Approach: Most social protection programs operate without a legal guarantee, undermining the stability and predictability of support for vulnerable groups. This fragility is exacerbated by the political motivations, which often prioritize electoral gains over impartial societal needs.
  • States with limited political competition like Gujarat often introduce fewer welfare initiatives.
• Unbalanced Social Protection Landscape: The focus of welfare programs tends to be uneven, leaving the very young and the old, who lack political clout, at a disadvantage.

Strengthening the overall social protection architecture, along with fostering economic opportunities, can ensure that income transfers contribute to comprehensive and inclusive development.

‘+1’ Value Addition:

• Social security is a human right, according to the United Nations Declaration of Human Rights. According to the ILO’s World Social Protection Report, 2022, India spends too little on social protection.
• The biggest and most well-known income transfer programmes include Mexico’s Prospera (Prosper), Colombia’s Familias en Acción (Families in Action) and Brazil’s Bolsa Familia (Family Allowance).
• Telangana and Karnataka have introduced the Mahalakshmi and the Gruha Lakshmi cash transfer programmes for women respectively.