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How does Rahul Gandhi plan to finance his 'Minimum Income Guarantee to every poor' scheme? Can this be done?

NPAs being written off and revenue being foregone every year for India’s rich can easily fund the Minimum Income Guarantee scheme.

POLITICS  |   6-minute read  |   30-01-2019

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 the then-Finance 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 Indian policymakers need to confront, but which instead 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 will 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 per cent of the 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 per cent of the 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 the 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 that 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 a 3.5 per cent unemployment rate for each year.

Reports say that the Sixth Employment-Unemployment Survey of 2016-17, which has been withheld by the government, shows the unemployment rate shot up to 3.9 per cent — up from 3.7 per cent in 2015-16 and 3.4 per cent 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.

Every year, 12.8 million youth are joining the labour force looking for work. So far, the scenario has been bleak. (Source: Reuters)

As for inequality, the 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 per cent of earners capture 22 per cent of total income”.

The latest Oxfam International report says, 136 million Indians, who make up the poorest 10 per cent 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 that “if this obscene inequality between the top 1 per cent 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 beneficiaries will be selected the same way as the ‘Ayushman Bharat’ selects its beneficiaries — from the list of the Socio-Economic and Caste Census of 2011.

The answer to the second one will have to wait until Rahul Gandhi tells us his “minimum” amount.

But assuming that he would follow the Tendulkar formula, that is, 22 per cent of the 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 per cent of GDP (since it costs 4.9 per cent of GDP for covering 75 per cent of the population as per the Economic Survey’s calculations) or Rs 1,99,511 crore — Rs 1,39,51,849 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 non-productive assets (NPAs) — and “revenue foregone” in the Budget for corporate taxpayers.

According to the RBI’s report, Operations and Performance of Commercial Banks, Rs 1,08,500 crore and Rs 1,62,700 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 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 the under-assessed/under-taxed property. That should be enough.

Just words of caution — whether it is UBI or MIG, don’t fund this from the expenditure on 950 central schemes. These schemes include those of food subsidy, fertiliser subsidy, MGNREGA, 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) — these cannot be substituted with UBI or MIG.

Not at least so long as India remains at the bottom of the pile in the Human Development Index and per capita income. Currently, India ranks 130th out of 189 countries in the UNDP’s 2018 HDI ranking.

Once India comes out of the low-income trap it currently is in, then such schemes could be replaced with cash transfers.

Also read: Why Rahul Gandhi’s promise of a universal basic income is worth being discussed

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