Minimum income guarantee: A game changer?

No way Congress' 'next big idea' will work without raising taxes

Congress President Rahul Gandhi’s announcement about minimum income guarantee (MIG) is the first big idea introduced in the run-up to the 2019 Lok Sabha elections. But Rahul Gandhi’s speeches in Raipur and Kochi were woefully short on any substance to back this big idea up. All we know is that the Congress is committing itself to some kind of income transfer to benefit the poor, should they fall below a minimum level.

For all its limitations, the announcement about MIG has already achieved something: It indicates the direction this election is likely to take. The Congress has already all but committed to a nationwide farm loan waiver.

Add to this the idea of MIG, and it is clear that the Opposition is pushing this election towards economic agenda. It is also clear that the Congress is going to focus on the economically poor, socially marginalised groups like Dalits and adivasis, plus neglected sectors like agriculture and rural India.
 

Other non-National Democratic Alliance (NDA) parties are ideologically vacuous and are likely to follow the lead given by the Congress. This leaves the Bharatiya Janata Party (BJP) with little option except to match or better this proposal in the interim Budget.
 

Will MIG become the game changer that the Congress has been perpetually waiting for? It all depends on the design behind this idea.

We know that this is not a proposal for Universal Basic Income (UBI), a flat cash handout to all citizens irrespective of their means. This is also not one of the modified basic income supplement proposals recently put forward by economist Pranab Bardhan or former chief economic adviser Arvind Subramanian et al.

This is in the nature of top-up cash support for any family that falls below a bare minimum income threshold. Yet, there are several issues that need some clarity. First, will the MIG be a government scheme, a discretionary budgetary item, or a statutory right like rural employment guarantee under Mahatma Gandhi National Rural Employment Gurantee Act or the right to food under National Food Security Act? The way it was presented, it appears to be a proposal for a guarantee backed by a statute. That is how it should be, but we need to know this for sure.

Second, what is the minimum amount that would be guaranteed as income? Assuming that it is family income that we are talking about, we should be looking at something around Rs 18,000 per month. This is the minimum monthly salary fixed by the seventh pay commission for the junior-most government employee, after taking into account the living costs. Logically, the bare-minimum standard of living for the government employee should also hold for every other citizen.

You could arrive at this figure through another route. If you think of a family of two adults who work at Rs 300 a day — the prevailing average minimum wage — it adds up to Rs 18,000 per month. 

Third, what is the mechanism for selection of the ‘poor’ eligible for this support? Identifying the poor is one of the most difficult exercises, notoriously prone to errors and frauds.

Finally, would MIG supplement or substitute some of the major schemes that target the poor such as the Public Distribution System and the Integrated Child Development Scheme?
 

But more than direction and design, a proposal like MIG is about determination or political will. Money is what it would boil down to. Any form of MIG would cost the government big time. Subramanian has calculated that a miserly version of his UBI scheme would cost 1.3 per cent of the GDP. Professor Bardhan estimates that if his version of UBI is given only to women, it would cost 1.6 per cent of the GDP. I cannot imagine how any serious MIG could cost less than 2 per cent of the GDP. That amounts to about Rs 3.5 lakh crore a year, over one-seventh of the budget of the central government.

This cannot be funded with current revenue level or with some additional surcharge. A recurring payout like this cannot be met with one-time disinvestment etc. No matter how you do your Budget maths, something like this cannot be implemented without raising tax revenue.
 

This could take the form of doing away with unnecessary tax exemptions for the rich, higher rates for upper income brackets, or levies like a turnover tax, or a wealth tax, or inheritance tax et al.

Is the Congress willing to commit itself to such a policy? If it is, and is willing to say so publicly, that could indeed be a game changer.

By special arrangement with ThePrint

The author is one of the founders of Jai Kisan Andolan, farmer wing of Swaraj Abhiyan, a constituent of AIKSCC