Pathways to an income guarantee -Ram Singh

-The Hindu

There is a compelling case for spending Rs. 3.6 lakh crore on the poor, but it must be done carefully

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. With the promise of the Nyuntam Aay Yojana (NYAY) by the Congress party, it is clear that the MIG is going to be a major political issue for the coming general election. 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.

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

Important questions

Several questions arise. 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.

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. They have remained the poorest of Indians. Contract and informal sector workers in urban areas face a similar problem. Due to rapid mechanisation of low-skill jobs in the construction and retail sectors, employment prospects for them appear increasingly dismal.

These groups are forced to borrow from moneylenders and adhatiyas (middlemen) at usurious rates of 24-60% per annum. For instance, for marginal and small farmers, institutional lending accounts for only about 30% of their total borrowing. The corresponding figure for landless agricultural workers is even worse at 15%. There is a strong case for direct income transfers to these groups. The additional income can reduce their indebtedness and help them get by without falling into the clutches of the moneylender.

Please click here to read more.