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. 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 Niño 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.
When deployed, they exacerbate crises by muting price and scarcity signals. Their primary fault is they tend to the visible symptoms, instead of treating the disease through market reallocations. Subsidies or price ceilings do soften the bill, but they do not directly enhance power capacity or induce consumer behaviour shifts to alternatives. They don’t expand energy storage or raise crop supply. They prevent the economy from adapting swiftly to scarcity.
They also tend to be sticky, often outliving the shock that justified them, making them fiscally unsustainable. Governments have had to eventually resort to painful subsidy reforms when the fiscal space is calcified. Even across many West Asian countries, subsidies began as crisis response. Egypt’s bread subsidy started as wartime rationing in 1941 while Iran’s electricity and water subsidies took root after the 1979 revolution and the war with Iraq. But they soon ballooned in scope, becoming permanent provisions. This made them tougher to dismantle, facing eventual public backlash.
The lesson is clear: subsidies or rationing through price-ceilings should not be the dominant crisis response to protecting vulnerable households. What then should be the response which protects without worsening the shock it seeks to soften?
India needs a quasi-universal, cash-based shock absorber. The name is admittedly clunky, but the government has rarely let welfare policies suffer for want of a catchy acronym. India already has the administrative spine from the Jan Dhan-Aadhaar-mobile trinity and direct benefit transfer architecture. Shock-absorber in the nature that they can be dormant in normal times, quickly activated in crises and automatically scaled back when conditions normalise. Unlike subsidies, this will respect price-signals and household choices instead of trying to dictate them.
It is not proposed as a new, add-on welfare policy, but streamlined within the existing DBT architecture. To be clear, the idea is not to replace existing critical welfare programmes; it is simply to reduce the discretionary—often tempting and slippery—space to implement sticky ad hoc subsidies in the name of social protection.
The Centre could create a national shock-responsive cash window. In normal years, it would remain largely dormant. It would be triggered by pre-announced indicators: a sharp spike in food or fuel inflation, notified heatwave or an external commodity shock. Transfers could run for up to six months, with a statutory sunset. Extension should require explicit approval from Parliament. The beneficiary base should lean towards being inclusive and can begin with existing lists: food beneficiary households, PM-Kisan beneficiaries, pensioners, unorganised or migrant e-Shram workers and other verified low-income groups. The amount should be indexed to a food-and-fuel basket such that its insurance value is not eroded by the very shock it is meant to blunt.
The specific nuts and bolts of will definitely need further democratic and fiscal deliberation before deployment. But as a country, living through an age of shocks, we must not risk sleepwalking into policy responses where we keep reinventing the wheel in every crisis, creating a mess of ad hoc reliefs while distorting market adjustments precisely when they matter most.
The case for such an instrument extends beyond supply shocks. The same pipeline can deliver social assistance during climate or health emergencies like flood or drought conditions or a renewed viral outbreak. We have already seen a glimpse of this during the Covid pandemic, when the PM Garib Kalyan package relied on DBT rails to push relief out within weeks. Institutionalising that capacity, rather than improvising it each time, should be the lesson.
The politics of welfare in India is changing. More stress will likely induce more welfare promises. This reality cannot be denied, but it can surely be disciplined.
Govind Gupta | JFK Presidential Fellow at Harvard Kennedy School and Weiss Fund Banerjee Fellow at University of Chicago
(Views are personal)