US$1bn World Bank aid to build integrated welfare programme in India

The World Bank funding will support the country to move from over 460 fragmented social protection schemes to an integrated system that is fast and more flexible, acknowledging the diversity of needs across India’s 36 regions

June 1, 2020

This takes the total commitment from the Bank towards emergency COVID-19 response in India to US$2 billion. A US$1 billion support was announced last month towards support to India’s health sector.

This new support will be funded in two phases – an immediate allocation of $750 million for the fiscal year 2020 and a US$250 million second tranche that will be made available for the fiscal year 2021.

Lockdowns enforced to arrest the spread of the disease have suspended the movement of humans and goods worldwide and is expected to cost the global economy as much as US$8.8 trillion.

The new programme will allow geographic portability of social protection benefits that can be accessed from anywhere in India, ensuring food, and cash-support for all, including migrants and urban poor.

The Government of India and the World Bank have signed a relief plan that would allow US$750 million in immediate financing to boost India’s COVID-19 Social Protection Response Programme. The aid comes as part of a total grant of US$1 billion to support India’s efforts at providing social assistance to the poor and vulnerable households, severely impacted by the COVID-19 pandemic. This takes the total commitment from the Bank towards emergency COVID-19 response in India to US$2 billion. A US$1 billion support was announced last month towards immediate support to India’s health sector. This new support will be funded in two phases – an immediate allocation of $750 million for the fiscal year 2020 and a US$250 million second tranche that will be made available for the fiscal year 2021.

The pandemic has claimed more than 360,000 lives between the beginning of December 2019 and the end of May 2020 and has infected over 5.9 million people in 180 countries. Meanwhile, lockdowns enforced to arrest the spread of the disease have suspended the movement of humans and goods worldwide and is expected to cost the global economy as much as US$8.8 trillion, as per the Asian Development Bank (ADB). Herein, the Government of India through a series of announcements in May 2020 introduced a stimulus package worth nearly Rs.21 trillion (US$277 billion), equivalent to around 10% of India’s GDP, to aid the sections of the society worst hit by the Coronavirus pandemic and open up new avenues of trade and investment activities in the post-Coronavirus economy. 

A strong and portable social protection system is critical to carry vulnerable households through current and future crises. The initiative will expand the impact and coverage of India’s social protection system by helping vulnerable groups access more social benefits directly and across the country. The first phase of the operation will be implemented through the Pradhan Mantri Garib Kalyan Yojana (PMGKY) which will provide cash transfers and food, social protection, and benefits, to the most vulnerable sections. In the second phase, the programme will further deepen the social protection package, whereby additional cash and in-kind benefits based on local needs will be extended through the state governments and portable social protection delivery systems, ensuring inclusive socio-economic welfare. 

Equity is social protection 

The move will be a vital help amid the Coronavirus crisis since half of India’s population earns less than US$3 a day and are precariously close to the poverty line. Additionally, more than 90 per cent of India’s workforce is employed in the informal sector, without access to significant savings or workplace-based social protection benefits such as paid sick leave or social insurance. Over 9 million migrants, who cross state borders to work each year, are also at greater risk as social assistance programmes in India largely provide benefits to residents within states, without adequate portability of benefits across state limits. Importantly, urbanising India and the rising urban poor population will need targeted support as India’s social protection programmes are largely focused on rural populations.

The Government of India has also put in strict measures to control the spread of COVID-19 that has infected more than 165,700 people and claimed over 4,700 lives up till March-end. After largely controlling the health crisis, the Government is now turning the focus to restarting the economy with full vigour following the world’s largest lockdown. In this context, cash transfers and food benefits will help the poor and vulnerable access a ‘safety bridge’ towards a time when the economy resumes its activity. The programme will create a system to strengthen the delivery of India’s safety nets program. It will:

  1. Help India move from over 460 fragmented social protection schemes to an integrated system that is fast and more flexible, acknowledging the diversity of needs across India’s 36 regions.
  2. Enable geographic portability of social protection benefits that can be accessed from anywhere in the country, ensuring food, and cash-support for all, including for migrants and urban poor.
  3. Move India’s social protection system from a predominantly rural focus to a pan-national one that recognizes the needs of the urban poor, the migrants, and those from unorganised sectors.

The World Bank-backed programme will support the Government’s efforts towards a more consolidated delivery platform – accessible to both rural and urban populations across state boundaries. The platform draws on the country’s existing architecture of safety nets – the PDS, digital and banking infrastructure, and Aadhaar – while positioning the overall social protection system for the needs of a 21st century India. Importantly, such a system will need to leverage India’s federalism enabling and supporting states to respond quickly and effectively in their context.

Commitment to prosperity 

Of the US$1 billion commitment, an immediate allocation of US$750 million is for the fiscal year 2020, of which US$550 million will be financed by a credit from the International Development Association (IDA) – the World Bank’s concessionary lending arm, The remaining US$200 million will be a loan from the International Bank for Reconstruction and Development (IBRD). Another US$250 million will be made available after June 30, 2020, and would be on standard IBRD terms. This will be implemented by the Ministry of Finance. Meanwhile, to enable opportunities in the post-COVID-19 economy, the Indian Government has introduced a set of a new policy and regulatory reforms and further liberalised access to as many as eight sectors to make business activities in India even more lucrative. 

The reforms include amendments in the financial system, compliances, FDI limitation, labour laws, among others, along with a boost to infrastructure and skill development, etc. The measures will be of particular help as economics around the world try to shake off the impact of prolonged lockdowns and return to activities in the post-Coronavirus world. This comes as part of the Indian Government’s commitment to delivering economic prosperity in uncertain times.