Days ahead of what was expected to be an interim budget with some major pre-election announcements from the government, Congress President Rahul Gandhi struck first, saying on Monday that his party is “committed to a Minimum Income Guarantee for every poor person”. This, along with a promise of a national farm loan waiver, gives the Congress a clear welfarist image going into an election that will likely revolve around Prime Minister Narendra Modi’s economic performance. The ball is now in the government’s court.
It is yet unclear exactly what the Congress has in mind. The party has said that its manifesto will include full details about exactly how this income guarantee scheme will work and how the government would be expected to pay for it. But here is what we know so far:
- This is not Universal Basic Income
- A popular approach in development circles over the last few years has been the idea of a Universal Basic Income, which would entail giving every citizen a periodic payment from the government regardless of how rich or poor they are. The idea was most notably put forward in former Chief Economic Advisor Arvind Subramanian’s Economic Survey of 2016-’17. There were some suggestions at the time that the government would at least consider some version of it, but that did not happen. Read an explainer of Subramanian’s proposal here, and how Universal Basic Income would actually work.
Instead, Gandhi has promised a Minimum Income Guarantee for the poor, which by definition means it will be some form of periodic payment but not “universal”.
- This means it will have to be targeted.
- One of the chief advantages of the Universal Basic Income is that the government does not have to go through the often arduous process of identifying who will be a beneficiary of the scheme. Instead, UBI is built on the idea that everyone is included, with the presumption that richer people might be convinced to exclude themselves. But a Minimum Income Guarantee for poor households would mean the Congress having to define who exactly is poor. That is a fraught question in India, as the debate over the poverty line during the Congress years proved. And once poverty is defined, the government will have to figure out how to identify households that fit into the category, and how to ensure that no one is excluded, an immensely complicated task.
- Will it replace subsidies or supplement them?
- This is the fundamental question when it comes to income guarantee schemes, or Universal Basic Income. There are two broad ways to pay for either of these schemes. The government could raise taxes, but economists believe that would simply lead to inflation – reducing the value of the actual income paid out to the beneficiaries. Or it could pay for the income by taking money out of its current subsidy budget, which would mean ending other targeted welfare schemes like the public distribution system for food.
Many believe the latter approach is likely for India. Economists on the Right believe it would end leakage and inefficiencies in the welfare state as it currently exists, but that comes with many other pitfalls. If the government withdraws from delivering welfare services like food, healthcare or guaranteed employment, what will the income itself achieve? There are concerns that a poor country like India would not be able to give out much in the way of income, while also gutting its existing welfare systems to be able to pay for the scheme.
An ideal version of an income scheme would be as a supplement to the existing welfare net, but the fiscal space for that may not exist. There have been some experiments at very local levels, where targeting may have been easier, but expanding this across the country is another matter. Some have suggested that simply universalising current benefits, like pensions and maternity entitlements would do the job without having to take an axe to the welfare state.
- How will the government respond
- The Congress, earlier accused of simply being opposed to Narendra Modi with no vision of its own, has now taken the lead in declaring its vision for how India’s welfare system would change if it came to power. Its 10-year period at the head of an alliance between 2004 and 2014 was also built on the back of an expanding welfare state, with schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme and the Right to Food Act. Now it is promising both a national farm loan waiver and a minimum income guarantee – which some have already dubbed “NEWREGA” – though the latter has yet to be properly explained.
Starting Thursday, the government is unlikely to unveil its own vision for India’s future. On Thursday, the President will address Parliament, in a speech which is likely to cover all the Modi government believes it has achieved so far. Then on Friday, the interim Finance Minister Piyush Goyal will deliver the Budget speech. Though convention suggests Budgets right before elections should not include major announcements, it may yet be an opportunity for the government to make grand promises about what it would do if it came back to power.
The government did not announce a Universal Basic Income, despite Subramanian’s pitch for it two years ago. On Monday, in a piece jointly written with two other economists, Subramanian once again made the case for a Quasi Universal Basic Income scheme that would cover all rural households and would be financed by eliminating certain subsidies. Whether this will be picked up by the government remains to be seen. Modi also began 2019 making the argument that farm loan waivers are bad for credit culture. His government’s first big gambit was the 10% quota for the upper-caste poor, but more is expected to help shore up the rural economy. How its ideas will stand up against the Congress’ grand promises may help define the policy element of the upcoming election campaign.