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INCOME GUARANTEE

Pathways to an income guarantee

The idea of a minimum income guarantee (MIG) has caught up with political parties. A MIG requires the government to pay the targeted set of citizens a fixed amount of money on a regular basis.

A limited version of the MIG in the form of the PM KISAN Yojana is already being implemented by the NDA government at the Centre. State governments in Odisha and Telangana have their own versions of the MIG.

INCOME GUARANTEE

What is NYAY?

NYAY is the most ambitious of these MIG schemes. It promises annual income transfers of ₹72,000 to each of the poorest five crore families comprising approximately 25 crore individuals. If implemented, it will cost the exchequer ₹3.6 lakh crore per annum.

Important questions

Is there a case for additional spending of such a large sum on the poor? The answer is yes. Can government finances afford it? No. Even if the government can mobilise the required sum, is the scheme a good way of spending money on the poor? No.

Need for MIG –

  • Many landless labourers, agricultural workers and marginal farmers suffer from multi-dimensional poverty. Benefits of high economic growth during the last three decades have not percolated to these groups. Welfare schemes have also failed to bring them out of destitution.
  • These groups are forced to borrow from moneylenders and adhatiyas (middlemen) at usurious rates of 24-60% per annum. The additional income can reduce their indebtedness and help them get by without falling into the clutches of the moneylender.

Challenges –

However, the fiscal space is limited. The Congress’s scheme will cost about 1.92% of the GDP. No government can afford it unless several existing welfare schemes are converted into direct income transfers, or the fiscal deficit is allowed to shoot up way above its existing level, 3.4% the GDP.

Consequences of the scheme

  • The poor spend most of their income, and a boost in their income will provide a boost to economic activities by increasing overall demand. On the other hand, large income transfers can be inflationary, which will hurt the poor more than the rich.
  • The effect of cash transfers on the workforce is also a moot point. In principle, the income supplement can come in handy as interest-free working capital for several categories of beneficiaries such as fruit and vegetable vendors and small artisans, and promote their businesses and employment. At the same time, large cash transfers can result in withdrawal of beneficiaries from the labour force. A MIG can also provide legitimacy to the state’s withdrawal of provisions of the basic services.

Shape of the scheme –

  • The scheme should be launched in incremental steps. An income support of, say, ₹15,000 per annum can be a good start. This amount equals 30% of the annual income of marginal farmers; and more than one-fourth of the average consumption of the poorest 40% of households.
  • Studies show that even a small income supplement can improve nutrient intake at high levels of impoverishment. Besides, it can increase school attendance for students coming from poor households. This would mean improved health and educational outcomes, which in turn will make the working population more productive. Moreover, with a modest income support the risk of beneficiaries opting out of the workforce will also be small.
  • Besides, a moderate income support can be extended to a larger set of poor households. For the lowest 40% (about 10 crore households), income is less than their consumption expenditure. In other words, on an average these households have to borrow to meet their expenses. These people can surely do with additional income support.

Identifying beneficiaries

The SECC along with the Agriculture Census of 2015-16 can help identify a larger set of poor based on verifiable criteria; namely, multidimensional poverty, landlessness and the marginal farmer. Together, these criteria cover the bottom 40%, approximately 10 crore households. Drawing upon the experiences with the poor-centric welfare schemes such as MNREGA, Saubhagya and Ujjwala and PM-KISAN, datasets can be prepared and used to update the list of needy households.

Conclusion –

The direct income support to the poor can deliver the intended benefits only if it comes as a supplement to the public services such as primary health and education. This means that direct transfers should not be at the expense of public services for primary health and education. There is a strong case for spending ₹3.6 lakh crore on the poor. But let’s do so carefully.

SourceThe Hindu

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