Sustainability of India's Welfare System in the Context of Globalization: A Comparative Study of Maharashtra and Tamil Nadu

Article excerpt

In the globalization--welfare debate, the key questions are whether and how welfare states sustain themselves in the face of increasing international capital mobility and national competitiveness. This article situates the Indian case within the debate by examining India's sub-national welfare programs and systems. By analyzing the Maharashtra Employment Guarantee Scheme and the Tamil Nadu Pension Scheme, the author identifies welfare program design as an important factor in explaining the sustainability of state-level welfare systems. The author argues that the liberal and means-tested feature of the protective regime in Tamil Nadu tends to divide constituents' support for welfare expansion, leading, in turn, to lower public spending. On the other hand, the promotive nature of the welfare system in Maharashtra enhances universal social rights and thus shapes a broad political coalition among social welfare supporters, resulting in higher public spending.

Why the Indian Case Is Important

With the dramatic rise in international capital mobility and steadily upward trends in trade integration since the 1970s, the welfare states of Western countries have faced growing efficiency and financial pressure. In some countries, such as the United Kingdom, welfare benefits--including pensions, unemployment, and social assistance schemes--have, to some extent, been scaled back. In other countries, such as Sweden, the governments have maintained welfare spending in response to negative aspects of globalization. Accordingly, sustainability of welfare states has become the subject of controversy in the ongoing globalization--welfare debate. However, neither empirical research nor theoretical debate focuses on the welfare systems of non-Western countries such as India.

In the Indian case, the government welfare system has seemed to decline since the 1991 reforms, as implied by declines in both the Social Sector Expenditure (SSE)--GDP ratio and the SSE-Total Expenditure (TE) ratio. The share of social-sector expenditure in total expenditures declined from 38.5 percent in 1990-91 to 29.7 percent in 2004-5. As a ratio of GDP, too, social-sector expenditure declined during that same period, from 6.1 percent to 5.4 percent. However, one methodological question has to be dealt with before one can conclude that India has retrenched social spending during the post-reform period. In India, the state governments--rather than the central government--incur the bulk of social-sector expenditures. The percentage shares of the states and of the center in the early and late 1990s are compared in table 1, where the contribution of the sub-national governments to social-sector expenditures is substantial and much larger than that of the center.

After this methodological adjustment, one important fact about the Indian case attracts attention: Despite an overall declining trend, the fiscal priority for the social sectors (indicated by SSE-TE and per capita SSE) has shown a divergent trend across the states in the post-reform years. Some states, such as Maharashtra (in western India), have shown a rare increase in shares of social-sector expenditure in total expenditures, while other "traditional welfare states," such as Tamil Nadu (in southeast India), have faced a clear decline in similar areas. This article explores the welfare programs and systems at the sub-national level in India.

This piece is structured as follows: The next section offers a review of relevant literature and presents a framework for the analysis of welfare program sustainability. After that, the history and designs of two state-specific programs are discussed, and their effects on the sustainability of the programs are compared. The subsequent section constructs a welfare-spending index in order to conceptualize the welfare regimes in Tamil Nadu and Maharashtra. The final portion presents concluding remarks, caveats, and directions for future work. …