The biggest problem with such ideas taking center stage in India’s political economy is that it distracts attention from the more pressing task at hand — creating high-quality jobs.
During election season, which we’re entering in India, everyone likes the idea of giving voters more money. Congress Party President Rahul Gandhi, the de facto opposition leader, says his party will guarantee a minimum income for the country’s poor if victorious. Reports suggest that Prime Minister Narendra Modi’s government may compete by announcing some form of direct transfer of cash to farmers in the interim budget to be revealed on Friday, which could cost the exchequer nearly $10 billion annually.
While governments everywhere should take care of their most vulnerable citizens, the idea of guaranteeing a basic income is wrong for India right now. Fundamentally, it would only work if two conditions were met. First, large sections of the population would have to be mired in absolute poverty. And second, all other subsidies and welfare programs for them would have to be abolished in order to free up the necessary funds without completely blowing open India’s fiscal deficit, which is already strained.
Neither condition prevails in India. While there’s no recent government estimate of the number of people living below the poverty line, credible research by the Brookings Institution suggests that extreme poverty in India, defined as those living on less than $2 a day, now afflicts only five percent of the population. Granted, that’s still more than 70 million people. But, for the vast majority of Indians, the challenge is no longer subsistence, it’s aspiration. No basic income guarantee will be able to address rising aspirations unless it’s a very large sum of money. At India’s level of national income, providing anything more than a subsistence income would simply be unaffordable.
Press reports say the government’s idea would be to replace existing subsidy programs with a direct cash transfer. But, realistically, the chances of any Indian government, no matter how committed to fiscal rectitude, cutting down India’s gigantic maze of welfare programs is negligible, probably zero. In fact, it’s hard to name any government welfare scheme that has ever been abolished in India. Many have been renamed, tweaked, often expanded, but never eliminated altogether. Given the reality of an extremely competitive polity, no politician will risk being labeled anti-poor by abolishing even one, let alone the entire gamut, of welfare schemes. Any cash-transfer scheme will thus likely be a top-up over everything else.
Perhaps the biggest problem with such ideas taking center stage in India’s political economy right now is that it distracts attention from the more pressing task at hand — creating high-quality jobs. Whoever wins the next election, whether Gandhi’s Congress or Modi’s Bharatiya Janata Party or a third alternative, may end up implementing some version of an income guarantee. That would probably yield a short-term political dividend. Ultimately, however, any new government will be judged by whether or not it can create jobs. Welfare can never be a substitute for productive employment.
For politicians who have shied away from job-creating but politically difficult economic reforms — in banking, as well as land and labor laws — a well-delivered welfare scheme may buy time. It would be so much better for India, though, if the case for reform was argued with the same intensity and implemented with equal alacrity. India might, after all, be able to afford one more welfare measure if it were accompanied simultaneously by big-bang market reforms. –Bloomberg
Wow! The author’s bigotry against the poor shines through. Let’s look at your two conditions:
First, large sections of the population would have to be mired in absolute poverty: So all the malnutrition deaths don’t mean anything to you? What exactly is your definition of ‘absolutely poverty’? Your contempt for the 70 million people you mention in your article, is obvious. So according to you, they can die from hunger for all you care? That the government should not care about the subsistence of that 5% and should only bother about the aspirations of the other 95%? You say “No basic income guarantee will be able to address rising aspirations unless it’s a very large sum of money.” The objective of any basic income scheme is not to fulfill aspirations. It is to ensure no one goes hungry, so that they have the energy to fulfill their aspirations. No one is trying to create a people who do not have to work. That you assume so, says more about you.
Second, all other subsidies and welfare programs for them would have to be abolished in order to free up the necessary funds without completely blowing open India’s fiscal deficit, which is already strained: Yes, obviously. There are any number of subsidies that are wasteful expenditure either because they do not benefit those it is intended to, or they benefit the wrong people. Fertilizer subsidies, for example only benefit the rich farmers who don’t need such benefit. Such subsidies can be abolished.
And what makes you say it distracts from creating jobs. No one says MIG is the only solution. No one says jobs needs not be created. MIG is just one measure in several needed. So, don’t let your political biases keep you from thinking rationally, will you!
Well said Sundar, I am in complete agreement with you.No wonder with people like Shekhar Gupta at the helm the inequality in the country is increasing by the day with their top down development approach of main emphasis on high growth trickle down effect to poor.For more equitable growth it should be the other way round of bottom up approach of a balanced growth based on ‘Human Development Index’ allowing more equitable distribution of wealth. That makes poor oriented UBI or its modified versions for poorest poor of Income Guarantee Scheme to go hand in hand with developmental works for the aspirational class.My problem with RG or for that matter past Cong govts. so far is they think of it only just before election when they are out of power. Take it from me once they come to power they will forget all this and Mukesh ambani will be the first to open his ‘Cong. Shop’ as he famously said in the Radia tapes.