FOR A NIMBLE WELFARE FRAMEWORK

AS the West-Asia crisis persists, countries are hard-pressed to respond. Over half the global responses have been concentrated in the form of subsidies, as per the World Bank.

- GOVIND GUPTA

India’s responses echo the menu: emergency kerosene reallocation, LPG price absorption for poor households, excise duty cuts on petrol and diesel and a steep fertiliser subsidy hike overshooting the budgetary allocation by 75 percent.

Taken together, the responses show how they quickly turn into a patchwork of price reliefs. But in the new context of persistent, overlapping shocks, India’s social protection response will need a conscious rethink: from being crisis-assistance to crisis-insurance. Policy instruments no longer face one-off shocks but a rhythm of recurring ones.

This is the challenge of what the Prime Minister recently called a “decade of disasters”. The manifest examples of accumulating crises are readily visible: rising energy prices, a predicted El Nino shock with knock-on effects on monsoon foreshadowing food inflation, heatwaves pushing India’s power demand to records. The PM warned that if these crises are not dealt with, the hard-won development gains could be washed away.

Many of the crises primarily reach the poor as a purchasing power shock. Negative supply shocks in energy or food are borne disproportionately when their prices rise. The question is not whether governments should protect households. It must. However, the usual open-ended reflex of subsidies, price-ceilings, tax cuts, free units of power or transport will be the riskier, more myopic choice.