Taiwan’s universal cash handout: Its economic rationale holds a lesson for similarly placed India

But why would a high-income, high growth, fiscally-prudent economy, running record trade and current-account surpluses, resort to cash handouts? The answer lies in a disjunction between measured growth and experienced prosperity, one that should resonate uncomfortably in India.

Taiwan’s growth has been spectacular. AI-driven demand has sent chip and server exports soaring by more than 30%. But this boom is concentrated in a small part of the economy.

Semiconductor firms like TSMC enjoy big margins while large parts of traditional manufacturing—machine tools, auto components, furniture—are stagnating. A quarter of Taiwan’s workforce is employed in these old sectors, where wages are under pressure and job security is weakening.

More striking is consumption, which has gone down to 43% of GDP—to China’s level and far below the rich-country average. Productivity has risen sharply, but wages have not kept pace.

The labour share of national income has declined. House prices have exploded. Thus, Taiwan’s growth has led to an economy where export competitiveness is prioritized over domestic demand.

That is why the cash transfer was felt necessary. The government is not trying to stimulate growth, which is already high. It is trying to rebalance growth towards households, correct excess savings and convert external surpluses into domestic welfare.

In other words, it is making that growth inclusive. Crucially, it can do so because it is running large fiscal and current-account surpluses, with ample fiscal space.

Taiwan’s universal cash handout is explicitly framed as a sharing of “economic fruits.” It is about 2.5% of per-capita disposable income and financed from the record tax revenues generated by its tech boom, not by borrowing.

There was no attempt to target specific vote banks, no gender or caste-based design and no pretence that this was a permanent entitlement. It is therefore quite unlike the competitive welfare politics now visible across Indian states.

In Taiwan, policymakers recognize that when growth is excessively export-led, currency management, corporate profits and balance-sheet strength can grow even as household incomes stagnate. Cash transfers are a direct way to address this.

The parallels with India are striking. India is among the fastest-growing large economies in the world, but consumption growth, especially rural, is lagging. Real rural wages have been flat and private investment uneven. Household debt has risen sharply.

Recognizing these stresses, policymakers have delivered multiple stimuli: sharp personal income-tax cuts, reductions in GST rates and multiple interest-rate cuts, accompanied by substantial liquidity injections by the central bank. This is indicative of growth not ‘spreading’ fast enough.

Meanwhile, India has become the world’s largest laboratory for unconditional cash transfers to women. From one state in 2020, such schemes now operate in 15, at a cost approaching ₹2.5 trillion—about 0.7% of GDP.

Unlike Taiwan, many of these programmes are explicitly electorally motivated and permanent, causing huge fiscal strain.

Both Taiwan and India illustrate a classic Keynesian-structural insight: GDP and overall income growth do not automatically translate to consumption growth when income distribution shifts against labour or to high-saving households and firms.

Export booms, capital-intensive technologies and financial repression can all raise aggregate output but suppress mass purchasing power.

In Taiwan, suppressed wages, an undervalued currency and inflated asset prices have produced excess savings and weak consumption. In India, low farm prices, informalization of labour and high household debt have worked similarly. In both, the marginal propensity to consume out of national income has declined.

Cash transfers, therefore, are not merely welfare instruments; they are macro-stabilizers. They raise the share of consumption in GDP directly. But fiscal sustainability is one risk and policy substitution—using cash to mask deeper failures—is another. The Taiwan episode offers lessons for India.

First, Taiwan’s cash transfer is an admission that high growth can coexist with weak household welfare. India should resist triumphalism about headline GDP numbers and focus on growth in consumption, real wages and income distribution.

Second, Taiwan could afford a universal cash transfer because it had large surpluses generated by an external boom. India does not have these. Financing such schemes through borrowing risks crowding out public investment in health, education and infrastructure, hurting inclusive growth.

Third, cash is a complement, not a substitute. Taiwan sees transfers as a temporary rebalancing tool, not permanent entitlement. For India, unconditional cash must not replace structural reforms aimed at raising farm income, generating urban jobs, strengthening small firms and ensuring that productivity gains drive wages.

High growth is necessary but not sufficient. What sustains an economy is not exports or balance sheets, but the confidence of ordinary households.