Targeting of social transfers: Are India’s poor older people left behind?

Highlights

• I examine the targeting performance of and access to social pensions in India.

• Exclusion of poor older people continues to be a widespread problem.

• The overall benefits from targeting are very limited.

• Below Poverty Line (BPL) card as eligibility criterion can be misused by non-poor individuals.

• Poor older people lacking a BPL card and/or political connections appear to be left behind.

Abstract

Whether social transfers should be targeted or universal is an unsolved debate particularly relevant for the implementation of social protection schemes in developing countries. While the limited availability of public resources encourages targeting, the difficulty to identify the poor promotes a universal allocation of benefits. To address this question, this study examines the targeting performance of and access to a social welfare scheme for an increasingly vulnerable group – India’s poor older people. The results show that during a time period of social pension reforms, exclusion and inclusion errors were successfully reduced but the exclusion of poor older people continues to be extremely high. Comparing the existing targeting approach to a random allocation, I show that the benefits of targeting are limited. The reforms aimed at increasing the transparency of social pension allocation indeed made the Below Poverty Line ration card the most important determinant of access to social pensions for older people. However, this focus on the ration card promoted by the national government has its own weaknesses. Non-poor older people exploit the unwarranted possession of this ration card and results suggest that after the reforms individuals with direct connections to local government officials are more likely to access social pension benefits. The current targeting approach seems to be beneficial for well-connected older individuals while many poor older people typically lacking these connections lag behind.

Introduction

Accelerating demographic change, a persistently large informal sector and weakening family support for the older people have important implications for old-age poverty in developing countries. Multi-generational household models that traditionally provided support to older people are diminishing due to migration and declining fertility (James, 2011). In contrast to the small minority of formal sector workers that benefit from comprehensive social protection and old-age income security, the vast majority of informal sector workers is predicted to face increased risks of old-age poverty in the near future given their lack of social protection coverage (e.g. Lloyd-Sherlock, 2000). Implemented as cash transfers, social pensions aim to mitigate old-age poverty faced by individuals who lack social protection coverage (Holzmann & Hinz, 2005). To improve the old-age income security of the poor, in 1995, the Indian government introduced the National Old Age Pension Scheme (Government of India, 1995).¹

The National Old Age Pension Scheme targeted towards poor older people belongs to the National Social Assistance Programme which supports vulnerable groups through various social assistance schemes (Government of India, 1995). Motivated by the increasing risks of old-age poverty in the presence of demographic change and widespread informal sector employment, I focus on evaluating the targeting performance of the social pension scheme for poor older people.²

The effectiveness of social pensions in terms of old-age poverty reduction depends essentially on whether social pensions reach the poor older people or not. However, the targeting performance remains an under-researched topic in India. Existing studies do not focus on the targeting performance and suffer from different limitations. Dutta et al., 2010, Gupta, 2013 analyzed the implementation of social pensions in a descriptive manner for a few selected states. Chopra and Puddussery (2014) assess the implementation of social pensions but focus in their analysis only on benefciairies and hence cannot assess the targeting performance. The latest study by Kaushal (2014) used repeated cross-sectional data for all of India but lacked data on social pension receipt and needed to approximate beneficiary status. Research on social pensions in other countries including Brazil and South Africa has made the importance of social pensions for poverty reduction evident. The impact of social pensions is not restricted to the well-being of direct beneficiaries; other household members and especially grandchildren seem to benefit as well from the cash transfer (e.g. Duflo, 2000, Edmonds et al., 2005, Lloyd-Sherlock, 2006).

This paper contributes to the existing literature in two ways: First, improving our understanding of whether social pensions reach the poor older people is an important prerequisite for analyzing the effectiveness of social pensions in India and other developing countries with similar institutions and similar targeting challenges. Second, methodologically I contribute to existing targeting studies by comparing indicators of the targeting performance to a hypothetical random allocation of social pensions. Moreover, in examining the relevant factors affecting access to social pension benefits, the availability of panel data allows me to minimize potential omitted variable bias and a placebo test shows that the identified factors are indeed relevant and not just driven by spurious correlations.

To address limitations in targeting and coverage of social pensions, the central government introduced social pension reforms in 2007. The results of this study indicate that from 2004–05 to 2011–12, these national level reforms contributed to a reduction of the exclusion and inclusion error but both targeting errors continue to be very high. Comparing the actual allocation of social pensions to a hypothetical random allocation, the results suggest that the benefits from targeting are relatively small for the exclusion error and relevant but decreasing over time for the inclusion error. Even though the allocation of social pensions has moved towards the Below Poverty Line (BPL) card as a more observable criterion, this criterion itself is too weakly implemented to achieve effective targeting of the poor. BPL card holding is relevant for individuals from both asset poor and asset non-poor households to access social pensions and individuals who have direct connections with the local government have higher chances to receive the benefits.

The remainder of the paper is structured as follows: Section 2 provides background information on the implementation of social pensions in India and summarizes existing literature in this field. Section 3 presents the theoretical framework by describing the targeting challenge and how social pension reforms in the Indian context are related to it. Section 4 describes the data and explains the methodology. In Section 5, I present the results from the empirical analysis before concluding in Section 6.