CNBC TV18 Article : Minimum Income Guarantee

This piece on Minimum Income Guarantee appeared in CNBC-TV18 here

The conversation around an income guarantee for the poor is not new. In the Economic Survey of India 2016-17, the then chief economic advisor to the Government of India, Arvind Subramaniam  had made a case for Universal Basic Income, suggesting that it was a path that needed to be adopted sooner rather than later. The Universal Basic Income is a fixed cash transfer to every resident of the country. The Economic Survey declared that Universal Basic Income  “could be to the twenty first century what civil and political rights were to the twentieth.”. The price tag on a universal basic income for a nation as populous as India would be back breaking.

There have been murmurs about the Government veering towards some form of universal basic income, ever since the BJP lost the state elections in the Hindi heartland. And, the announcement by the Congress President Rahul Gandhi that “If voted to power in 2019, the Congress is committed to a Minimum Income Guarantee for every poor person, to help eradicate poverty & hunger” seems to be timed to pre-empt the eventuality of the Government’s announcement. As a political move, it is one that will catch the attention of large chunks of the population.  But, the billion dollar question remains, can India afford it? What Mr Gandhi has suggested is not so much a Universal Basic Income, as much as a targeted cash transfer to the poorest amongst Indians.

 As per the Tendulkar committee (2009) report the percentage of extremely poor in India stands at 22% or   286 million people. Roughly one in five Indians lives in extreme poverty. The Rangarajan committee report (2014) estimates that 30.9% of the rural population, and 26.4% of the urban population is extremely poor. Even And, that is defined as a Monthly Per Capita Expenditure of Rs. 1407 in urban areas and Rs. 972 in rural areas. In other words, the extreme poverty levels are defined as those people living on less than Rs 47 per day in urban areas, and less than Rs.32 per day in rural India. For a family of five, this translates into a monthly consumption expenditure of Rs.4,860 in rural areas and Rs.7,035 in urban areas. if we look at more recent figures, put up by the World Poverty Clock, where India has been immensely successful in lifting people out of poverty,   the extreme poverty figure is estimated at 3.6% of India’s population, close to 50 million people. And, between the Tendulkar committee report estimates and the World Poverty clock estimates is the population Mr Gandhi would want to address with his minimum income guarantee scheme.

Source : here

The question remains, can India afford it? And, the answer is simpler than it sounds – can India afford not to have income support for those who live on less than Rs 47 per day? In an earlier column on the Universal Basic Income, this columnist had suggested that given the number of shrinking job opportunities for unskilled or semi-skilled labour, UBI would need to be considered sooner rather than later, as a means of staving off not just extreme poverty, but social unrest due to poverty. 

What would be interesting to see is if the minimum income guarantee programme subsumes all other poverty alleviation programmes or not. According to the Economic Survey of India, the Central Government already runs almost 950 central schemes that accounts for 5% of the GDP. Would the Minimum Income Guarantee scheme be in addition to these schemes, or instead of these schemes?   Where would the extra money come from to run this programme, and not fall foul of the deficit to GDP ratio that India tries to adhere to?

One option is to increase direct taxes. And, there isn’t much space to do that. We are already a heavily taxed nation, and the tax base is too small to make a substantial dent on the money required to fund such a scheme. The other is to rationalise GST, and remove most of the items – bar those required for sustenance from the 0% bracket, and tax them at a nominal amount – like 3%. Also, the boost to the economy of between 50 million and 200 million being able to spend on basics, will bump up GDP, growth and incomes lifting incomes all around Or that is the theory.

But the biggest question is how will a future Government of India define poverty?  Which figures will it use – the accepted Tendulkar committee figures, the more recent Rangarajan committee report figures, World Bank figures, or something else? Recently, the NDA Government when it introduced the 10% reservation for economically weaker sections, defined economic weakness as a family income below Rs.8 lakhs per annum. While they may not be defined as living in abject poverty, this gives you a ball park figure below which different groups will agitate for  income support.

Be it the BJP or the Congress, the time for income support is here. The thought is out of the genie’s bottle, and it will be acted on – sooner rather than later. If India wants to be a super power, it cannot do so with millions of fellow citizens living in abject poverty. The time for a social security net, that includes income transfer is here. The question is how can it be best implemented.      

News Reporter

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