In a significant economic move, Taiwan announced a one-off universal cash transfer to all its citizens in late 2025. This decision, coming from a high-growth economy, underscores a critical lesson for similarly placed nations like India: rapid GDP expansion does not automatically translate into widespread prosperity or robust domestic consumption.
The Paradox of Taiwan's Spectacular Growth
Taiwan's economy is booming, with GDP growth projected at over 7% for 2025, its fastest pace in more than a decade. This surge is powered by a formidable boom in semiconductors, AI servers, and electronics exports, which have soared by more than 30%. However, this headline growth hides a stark internal imbalance. While tech giants like TSMC enjoy massive profits, traditional manufacturing sectors—such as machine tools, auto components, and furniture—are stagnating.
Approximately a quarter of Taiwan's workforce is employed in these older industries, where wages are under pressure and job security is weakening. Consequently, private consumption has stagnated, with consumer confidence remaining fragile. The share of consumption in GDP has plummeted to 43%, a level comparable to China and far below the average for rich nations. Despite sharp productivity gains, wages have not kept pace, and the labour share of national income has declined, exacerbated by exploding house prices.
Rationale Behind the Cash Transfer: More Than Just Welfare
Why would a fiscally prudent, high-income economy running record trade and current-account surpluses resort to cash handouts? The answer lies in a deliberate policy to rebalance growth. The Taiwanese government is not trying to stimulate an already hot economy. Instead, it aims to redirect the benefits of growth towards households, correct excess savings, and convert external surpluses into domestic welfare.
The transfer, framed as sharing the "economic fruits," amounts to about 2.5% of per-capita disposable income. Crucially, it is financed from record tax revenues generated by the tech boom, not by borrowing. This approach is explicitly a macro-stabilizer—a temporary tool to address the disjunction between measured growth and experienced prosperity. Notably, the scheme is universal, with no targeting of specific vote banks or pretence of being a permanent entitlement.
Striking Parallels and Critical Divergences with India
The parallels with India's situation are immediate and instructive. India is among the world's fastest-growing large economies, yet consumption growth, especially in rural areas, is lagging. Real rural wages have been flat, private investment is uneven, and household debt has risen sharply. Recognizing these stresses, Indian policymakers have deployed multiple stimuli, including income-tax cuts, GST rate reductions, and interest-rate cuts.
However, India's approach to direct transfers differs fundamentally. The country has become the world's largest laboratory for unconditional cash transfers to women, with schemes now operating in 15 states at a cost approaching ₹2.5 trillion (about 0.7% of GDP). Unlike Taiwan's temporary, surplus-funded model, many Indian programs are explicitly electorally motivated and structured as permanent entitlements, creating significant fiscal strain.
Both economies illustrate a classic Keynesian-structural insight: aggregate income growth does not guarantee consumption growth when gains are concentrated in high-saving firms or capital-intensive sectors. In Taiwan, suppressed wages and an export-focused model have weakened mass purchasing power. In India, factors like low farm prices, labour informalisation, and high household debt have produced a similar effect of dampening the marginal propensity to consume.
Key Lessons for Indian Policymakers
The Taiwan episode offers several crucial lessons for India. First, it is an admission that high GDP growth can coexist with weak household welfare. India must look beyond triumphalism over headline numbers and focus on consumption growth, real wages, and income distribution.
Second, Taiwan's fiscal space allowed for a universal transfer without borrowing. India, lacking large external surpluses, must be cautious. Financing similar schemes through debt risks crowding out essential public investment in health, education, and infrastructure, which are themselves vital for inclusive growth.
Third, cash is a complement, not a substitute. Taiwan views its handout as a temporary rebalancing act. For India, unconditional cash transfers must not replace the harder task of structural reforms aimed at raising farm incomes, generating quality urban jobs, strengthening small firms, and ensuring productivity gains translate into higher wages.
The core takeaway is that what ultimately sustains an economy is not export figures or corporate balance sheets, but the confidence and purchasing power of ordinary households. As India navigates its own growth path, Taiwan's experience provides a clear, timely case study in using policy tools not just for stimulation, but for intelligent and sustainable rebalancing.
