"It’s critical that programs help those vulnerable to poverty to anticipate and manage risks and shocks better through portable tools prevent them from falling back into poverty– health insurance, social insurance (in case of death, accident and other calamities) and pensions."
India Human Development Survey 2012 data shows that 27 per cent of households report members using/benefitting from private insurance. Unsurprisingly, the bottom 20 per cent report very low uptake of private options for market-based insurance. Most Indian households – poor and non-poor - rely on personal savings to deal with health, accidents or climate shocks. Micro surveys and administrative data also highlight major gaps in pension and health insurance coverage.
Recent policies have taken steps in the right direction. The boost in crop insurance, new pension plans for the elderly, new contributory pension schemes for those who have the wherewithal to save, and larger coverage of health insurance programs will help India re-balance its social protection architecture to match the needs of the rising numbers of its vulnerable people.
Given the huge diversity in the economic profile of India’s states, a variety of approaches will be called for. For instance, the needs of the rising middle-class with access to private insurance markets in Delhi and Maharashtra will differ markedly from the needs of poorer states such as Uttar Pradesh and Bihar. Delhi should be enabled to spend its centrally allocated social protection resources differently from Uttar Pradesh. In states where many poor and vulnerable households are still not able to save enough to insure themselves against crises or times of high prices, social assistance will remain a core intervention. In low income states, traditional anti-poverty programs such as PDS or MGNREGS, if implemented well, can serve twin goals of protection and prevention by ensuring India’s vulnerable don’t become poor and that the poor live with dignity during times of drought or food price inflation. Effective safety nets can dramatically reduce the number of poor and the likelihood that poverty will be transmitted from one generation to the next. Strengthening their delivery systems is key, while allowing state governments to choose the optimal mix of preventive and protective programs to suit their state’s needs within an umbrella social protection budget.
If insurance coverage is adequate and expands, many families would not need to rely on safety net transfers in the face of old age or health crises which would otherwise push households into long term poverty and debt traps. Thus, an increased emphasis on interventions that help anticipate risks should be expected, particularly in medium- and high-growth states.
In 2019, India is no longer a largely chronically poor country but a more unequal and vulnerable country with pockets of deep poverty. India’s future shared prosperity will depend to a large extent on how its social protection system evolves and catches up with its diversity and demography.
The article has been authored by Shrayana Bhattacharya, Senior Social Protection Specialist, World Bank, John Blomquist, Lead Economist, World Bank and Rinku Murgai, Lead Economist, World Bank. An abridged version of this article was originally published in the Indian Express on March 4th, 2019.