On Monday, Congress president Rahul Gandhi declared the promise of a ‘minimum income guarantee’ for every poor Indian household, sans the melodrama of ‘wiping away tears’.
The idea of a basic income is so powerful that it has even attracted otherwise drab economists to melodramatic descriptions of economic policy.
The simplistic idea behind a basic income for every citizen is that, in a just and humane society, every family must be entitled to some minimum income, without prejudice. Universal basic income or minimum income guarantee or just basic income is a policy idea that has been widely discussed and reviewed in recent times across the world. It is also one of the unique ideas that are acceptable across the economic ideological spectrum from the extreme Left to the extreme Right. The Left likes it for its egalitarianism and the Right likes it for its efficiency. Reasonably no nation in the world needs this more than India and at no better time than now.
The Indian economy has been destroyed with the self-inflicted twin shocks of demonetization and GST. Rural distress is widespread. Real income growth has been sinking. Jobs and hence, incomes, for youth are scarce. Liquidity crisis created by demonetization turned into a solvency crisis for many small businesses. The yawning hollow between the rich and the poor is widening.
It is thus time to remonetize the economy. It is time to stop the ongoing decline for millions of India’s poor. It is time to place money in people’s hands. A minimum income guarantee scheme can do exactly this. This is the hope of the Congress president to India’s poor. This idea has been actively debated and contested within the Congress party for some time now. The manifesto committee chaired by then finance minister P. Chidambaram has held various meetings with stakeholders over the past several weeks.
The minimum income guarantee scheme
There is understandable curiosity about the scheme and its details after the announcement by Rahul Gandhi. The Congress party’s minimum income guarantee scheme will be an Indian adaptation of the universal basic income idea as mooted by economists. It will not be universal, i.e. it will not be for everybody. It will also not be a standard income for everyone. It will be a progressive scheme.
The idea is that all family in India must be entitled to a certain basic minimum income that can be determined through a combination of factors such as per capita income, cost of living, inflation etc. The number of households that fall below this basic minimum income threshold can be imputed through economic Census surveys. The amount of income assistance offered for these families will then vary depending on their income distance from the minimum income threshold. This is broadly how a progressive minimum income guarantee scheme can be structured. The exact details of the structure of this scheme, the minimum income threshold amount, the number of beneficiary families are being worked out and will be detailed in the Congress party’s manifesto, to be released soon.
How it will be funded
There is the other important question of how this scheme will be funded. The Congress party is keenly aware of the importance and the need for fiscal discipline. Hence, fiscal restraint will be adhered to. It is our belief that the scheme can be adequately funded through a combination of increased revenue and rationalization of expenditure. Let us also not forget that with oil prices at stable lows, this is also the most favorable macroeconomic window to embark on this idea. It is evenly important to note that income in the hands of a large no. of people provides an instant boost to consumption and the overall economy.
Other subsidies and welfare programmes
There is much speculation that the introduction of a minimum income guarantee scheme will mean abandoning other subsidies and welfare programmes. This is again being too simplistic. Subsidy and welfare schemes are of various kinds – cash schemes, in-kind schemes, merit subsidies, de-merit subsidies, etc. Evidently, some schemes are working well and some are not meeting the intended objectives. Hence, the need for rationalization of expenditure rather than a carte blanche rule to do away with all welfare programmes. It must also be noted that any transition to a new policy regime will need to be meticulously done and given sufficient time to smoothen the process.
Next, economic commentators worry over how we can we target poor households and measure the distance from the minimum revenue threshold. Admittedly, this is the most complex part. But that does not mean it is impossible. Using big data and technology, it is much easier to identify households by income distribution today than it was even 5 years ago. ‘It has not been done before’ cannot be a lazy excuse for not embarking on this idea when the nation needs it the most.
Overall, let us understand that India’s poor are slipping rapidly into an abyss. Headline economic growth has been devoid of jobs, incomes, and livelihoods for the needy. Subsisting social welfare programmes are patchy and inefficient. The arrival of technology is only threatening to further exacerbate the gap between the haves and the have-nots. Hundreds of millions of Indians are at the risk of being left behind. The minimum income guarantee scheme is the equivalent of India’s ‘No Indian Left Behind’ Act.