In-depth: Why Rahul Gandhi's minimum income promise can be a reality
NPAs being written off and revenue being foregone every year for India's rich can easily fund Minimum Income Guarantee scheme
Prasanna Mohanty | January 30, 2019 | Updated 16:33 IST
Congress President Rahul Gandhi's unexpected announcement promising a "minimum income guarantee to every poor" may have stumped many, but this is probably the idea whose time has come - to borrow Victor Hugo's words famously quoted by former Prime Minister Manmohan Singh while unleashing the liberalisation process in his 1991 budget.
That is because the world is experimenting with the idea of income redistribution in a big way for the past few years to overcome two major concerns of our time: vast and growing inequality and the threat of automation creating joblessness. India's concerns are no different. In fact, growing income inequality and unemployment are the two major concerns that the Indian policymakers need to confront but go abegging.
The basic idea of minimum income guarantee (MIG) is to provide income support to vulnerable people and families to ensure a life with dignity. In Rahul Gandhi's scheme of things, this is clearly meant for all poor - presumably, all those who fall below the poverty line. A clear picture would emerge once the details are unveiled.
NDA'S UBI vs Rahul Gandhi's MIG
Rahul Gandhi's announcement adds a twist to the debate on universal basic income (UBI) first mooted by the Economic Survey of 2016-17. The basic premise of the Economic Survey's UBI was: "A just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity".
The Economic Survey's plan was to provide Rs 7,620 per annum - Tendulkar's poverty line of 2011-12 was inflation-indexed to 2016-17 - to 75% of population. It said this would cost 4.9 per cent of GDP, which could be funded from 5.2 per cent of GDP allocated for 950 central sector and centrally sponsored sub-schemes in 2016-17.
In contrast, Rahul Gandhi's plan seems to target only the poor (whether he means 22% of population fixed as poor by Tendulkar or 29.5 per cent fixed by Rangarajan is not yet clear) and his "minimum income" has not been declared.
The difference between UBI and MIG is this: A basic income is generally understood as the poverty line (as do the Economic Survey and economists world over assume), while a minimum income is pretty much at one's discretion - equal, more or less than the poverty line expenditure.
Growing inequality and unemployment
While the Central government has stopped publishing employment data, ILO's 2018 World Employment and Social Outlook Trends says the number of India's unemployed is expected to rise from 18.3 million in 2017 to 18.6 million in 2018 and 18.9 million by 2019, at 3.5 per cent unemployment rate for each year. Newspaper reports say that the 6th Employment-unemployment Survey of 2016-17, which has been withheld by the government, shows the unemployment rate shot up to 3.9 percent - up from 3.7 percent in 2015-16 and 3.4 percent in 2013-14. This would mean a much higher unemployment number than the ILO's.
Every year, 12.8 million youth are joining the labour force looking for work. But such is the situation that in 2018 alone, 11 million jobs were lost - as the CMIE survey has shown.
As for inequality, French economists Thomas Piketty and Lucas Chancel have shown in their 2017 study, Indian Income Inequality, 1922-2015: From British Raj to Billionaire Raj? that India is more unequal now than any time since the British Raj and that the top 1 percent of earners capture 22 percent of total income".
The latest Oxfam International report says, 136 million Indians, who make up the poorest 10 percent of the country, have continued to remain in debt for the past 15 years; in 2018 alone, India's 119 billionaires saw their wealth mushrooming by Rs 2,200 crore a day on average. Oxfam's executive director found this "morally outrageous" and warned: "If this obscene inequality between the top 1 percent and the rest of India continues then it will lead to a complete collapse of the social and democratic structure of this country."
Selecting the poor and finding funds
Two questions have cropped up since Rahul Gandhi made his MIG announcement: One, how to select the beneficiaries and two, whether India's fiscal situation will allow this. The first one is easy to answer: The same way the Ayushman Bharat selects its beneficiaries - from the list of the Socio-Economic and Caste Census of 2011.
The answer to the second one would have to wait until Rahul Gandhi tells us his "minimum" amount.
But assuming that he would follow the Tendulkar formula, that is 22 percent of population as poor, and that they are to be given Rs 7,620 per annum in line with UBI, it would cost about 1.43 percent of GDP (since it costs 4.9 percent of GDP for covering 75 percent of population as per the Economic Survey's calculations) or Rs 1,99,511 crore - Rs 139,51,849 crore (size of GDP as per the advance estimate for 2018-19) multiplied by 1.43 percent.
Where would that money come from?
Well, one source could be the one that the government and RBI find every year to write off corporate loan defaults - better known as the non-productive assets (NPAs) - and "revenue foregone" in the budget for the corporate tax payers.
According to the RBI's report, Operations and Performance of Commercial Banks, Rs 108,500 crore and Rs 162,700 crore of NPAs were written off in 2016-17 and 2017-18, respectively.
Similarly, the revenue foregone was Rs 86,145 crore in 2016-17 and Rs 85,026 crore in 2017-18.
Taken together, Rs 194,645 crore in 2016-17 and Rs 247,726 crore in 2017-18 were written off up as NPAs and given up revenue foregone for the rich Indians - more than what MIG would cost for the poor Indians!
There are other ways to find funds too. As economist Pranab Bardhan has suggested, tax wealth, inheritance and long term capital gains and collect more tax from under-assessed/under-taxed property. That should be enough.
Just one caution: Whether UBI or MIG, don't fund it from the expenditure on 950 central schemes. These schemes include those of food subsidy, fertiliser subsidy, NREGA, SSA, LPG subsidy, awas yojana, gram sadak yojana, ICDS, Swachh Bharat, Mid-day meals etc. In other words, those are meant for long-term human development (health, education) and rural infrastructure (roads, housing) and can't be substituted with UBI or MIG.
Not at least so long as India remains at the bottom-pile in human development index and per capita income. Currently, India ranks 130th out of 189 countries in the UNDP's 2018 HDI ranking. Once India come out of the low income trap, then such schemes could replaced with cash transfers.
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6Universal Basic Income: Will it work in India?
The idea of UBI is not new but in the past few years, it has resurfaced globally in a very big way as a means of redistributing income.
Prasanna Mohanty | January 29, 2019 | Updated 14:44 IST
The central government is believed to be working on a universal basic income (UBI) scheme for the poor ahead of the General Elections. The Economic Survey of 2016-17 had first flagged the UBI as "a conceptually appealing idea" and a possible alternative to social welfare programmes targeted at reducing poverty.
What is UBI?
UBI is a fixed income every adult - rich or poor, working or idle - receives from government. The idea is that a society, as a first priority, should look out for its people's survival; the lesson is that possibly it can do so without unequal redistributive plans.
According to Basic Income Earth Network (BIEN), a global network of academics, students and social policy practitioners promoting and serving as a repository of published research on UBI, "A basic income is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement."
Why UBI?
The idea of UBI is not new but in the past few years, it has resurfaced globally in a very big way as a means of redistributing income. Several experiments/pilots are being currently run across the world, but not yet adopted by any country as such.
The primary reasons for the tilt towards UBI are two:
- Growing and vast inequality
- Threat of automation affecting jobs and creating joblessness
Some experts think the existing system "would falter and fail if confronted with vast inequality and tidal waves of joblessness." (Annie Lawrey, author of "Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World")
Basic premise of Economic Survey (ES) of 2016-17's UBI: "A just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity." Three components of this UBI model are: universality, un-conditionality and agency (by providing support in the form of cash transfers to respect, not dictate, recipients' choices). Its key features:
- Poverty line for 2016-17 has been fixed at Rs 7,620 per year, using Tendulkar's poverty line formula (inflation indexing @ Rs 5,400 per year fixed for 2011-12 to 2016-17 with a target poverty level of 0.45%) to lift all poor above the Tendulkar poverty line.
- It takes 75% of population as universal for UBI purpose.
- Cost and fiscal space: ES model will cost 4.9% of GDP - as against 5.2% of GDP spent on all 950 central sector and centrally sponsored sub-schemes (actual allocation of 2016-17). So, fiscal space exists - but only if UBI replaces all existing Central govt. schemes.
- Income transfer through DBT and by replacing all Central schemes, using Aadhaar.
- Use gradualism - like starting with women, elderly, widows, disabled etc.
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Why Economic Survey model raises many questions
Economic Survey model is based on gross under-estimation of poverty. The Tendulkar's poverty line was criticised widely for gross under-estimation of poverty - per day per capita expenditure of Rs 27.2 in rural and Rs 33.3 in urban areas for 2011-12. It fixed 22% of population as poor. Therefore, C Rangarajan revisited it in 2014 and put poor families at 29.5% (363 million) - fixing per capita per day expenditure at Rs 32 in rural and Rs 47 in urban areas.
Niti Aayog Task Force on Elimination of Poverty report supports the Tendulkar's formula saying that the Rangarajan formula has not been officially accepted. In 2016, Niti Aayog justified this by saying:
(a) The sole objective behind the poverty line being to track progress in combating extreme poverty, it makes more sense to it at a level just sufficient for accessing the basic necessities of life; and (b) Setting the poverty line at a level at which the individual has comfortable existence will not allow us to assess the progress in the fortunes of those in abject poverty.
Table 1: Poor families in millions, % of total population and parameters
Source: Niti Aayog and other govt reports
UBI can't be at the cost of expenditure on health, education or rural infrastructure
- 950 central sector and centrally sponsored sub-schemes include those of food subsidy, fertiliser subsidy, NREGA, SSA, LPG subsidy, Awas Yojana, Gram Sadak Yojana, ICDS, Swachh Bharat, Mid-day meals etc. These are meant for long-term improvement in human development, rural infrastructure, employment etc. and can't be substituted by cash transfer.
- Therefore, replacing existing schemes with cash transfer will adversely impact the development goals of India.
- India stood at 130 out of 189 countries in the UNDP's 2018 HDI ranking. Movement in the HDI are driven by changes in health, education and income.
India already has UBI-like scheme under which too little is paid, not hiked since 2006/7 - Under the National Social Assistance Programme (NSAP) since 1991, the Central government gives pensions to elderly, widows and disabled. The Centre's component is between Rs 200 and Rs 300. If GOI is interested in UBI, it can easily begin by increasing the pension amounts.
Not tried anywhere with India's level of income disparity and inequality
India's experience with NSAP (given above) and DBT (details in the 'notes') is limited and unsatisfactory. Need for good pilots of sufficient time. India should join in carrying out large scale experiment/pilot like Finnish and Canadian - to generate empirical evidence.
- Aadhaar-based DBT's flaws: Exclusion and authentication errors leading to starvation deaths in Jharkhand and other such experiences elsewhere.
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