On the other hand, the very fact that direct benefit transfers and pro-women schemes have worked so well electorally in recent state elections could well mean replication of some schemes could be taken up on a national scale over this nearly half a decade of time.

With budgetary resources always in short supply, the reforms versus welfarism question will remain a dilemma for the policymaker as he sits down to chart the country's future.

The government and indeed India does need reforms. Of course, questions may be asked about the type of reforms which need to be implemented. But that is another debate.

India certainly needs to cut down red tape further. It ranked 63rd out of 190 countries in the World Bank’s last Doing Business rankings. Delays in clearances to start a company or to build a factory are still endemic. A host of small and large reforms to boost domestic manufacturing can and need to be brought about.  

Reform For A Place In The Sun

Less than 3 per cent of global manufacturing takes place in India, as compared to 24 per cent in China. As New Delhi looks to onshore more and more international firms that are looking at a China Plus strategy, it does need to ramp up its act.

The production linked incentive (PLI) scheme has worked for India, but it’s a costly business to subsidise huge factories. Consequently, the government does need to look at solutions beyond a simple PLI scheme. 

The aim has to be making up for the difference in costs that a global manufacturing unit would incur in setting up shop in India, compared to China or Vietnam.

Alternatively, the country has to give the entrepreneur better returns, by ensuring a steady market for his products — which is difficult to promise, unless the buyer is the State, as in the case of defence products: or to ensure that the factors of production give the entrepreneur greater returns than in competing geographies. 

To ensure the latter — land, labour and financial reforms have to be fast forwarded. While the government will push towards introducing these reforms, the fear that drastic labour or land reforms may upset its apple cart electorally will remain a major constraining factor. 

Policies need to be tailored keeping these basic factors in mind rather than taking the form of a straightforward dole to India, which has its uses, but may result in a long-term dependence on state largesse which in turn would be a drag on the government. 

As a result, reforms to increase foreign direct investment limits in certain restricted sectors such as insurance, banking or defence technologies, can well be expected, as these incur little cost for the government. Though, by opening up these sectors, protected markets for domestic players would be eroded.

Reforms in other areas will come but perhaps not in a "Big Bang" style but rather in graduated doses.

Welfarism Remains A Strong Attraction 

However, the attraction to divert money to welfare economics remains equally strong, if for no other reason than electoral calculations.

Pro-women schemes like the ‘Ladki Bahin’, which promises a payout of Rs 2,100 to every enrolled woman in Maharashtra, or Jharkhand’s 'Maiya Yojana', which guarantees Rs 12,000 annually to women, or Mamata Banerjee’s ‘Lakkhir Bhandar’ in West Bengal, have delivered electoral results.

The overall share of women voting and their vote for those doling out the benefits seems to have increased.

Their message is that to win elections in a democracy, benefits, whether they be in the form of direct benefit transfers, or targeted schemes that help a particular group whose loyalty can be ensured, need to be continuously rolled out. 

Nevertheless, welfarism too has its limits, especially if their implementation is patchy. Then there are those who doubt if welfarism actually helps win elections.

Since the Covid lockdowns, the Indian State had positioned itself as a champion of welfare economics, but a study of budget figures do not support such an image. For instance, budgetary allocations under a flagship scheme of the Centre – the National Food Security Act – have been on the decline since 2019.

The share of food subsidy has come down to 4.25 per cent in this year’s budget, from 6.6 per cent five years ago. The only year when it crossed the 2019 levels was in 2021-22, when it was bumped up to 6.9 per cent to give relief to the poor hit by the pandemic.

Similarly, the allocation for the Integrated Child Development Scheme (ICDS) has been on a decline. The ICDS, which has now been merged into the Saksham Anganwadi and Poshan 2.0 schemes, accounts for 0.43 per cent of the Union budget, as compared to 1.08 per cent in 2014-15.

Allocations for health in the Union budget have also been on a downswing, from roughly 2.16 per cent in 2019-20 to 1.88 per cent in 2024-25. Much of the allocation goes into swanky new hospitals based on the AIIMs model, rather than into rural health dispensaries, the basic building bloc of a functional universal healthcare scene. 

Balancing Reform & Welfare

All in all, the policymakers in New Delhi’s corridors of power will have to go in for a dose of reforms to push the India growth story and to try take advantage of the changing trade and investment flows that can be expected as the new Trump administration disrupts the global supply chain and trading arrangements. 

Yet, to ensure that there is a continuance in governance through elections that need to be won, as also to ensure that people who make up the basic building bloc of any economy are well trained, healthy and well fed, welfarism cannot be overlooked. 

Patchy spending on welfare or non-delivery of reform promises can also lead to electoral rejections. Hence, the quality of implementation of both reforms and welfare measures will have to remain a focus area for policymakers, both to take India forward, and to ensure that there is a continuity in governance.