No way Congress’ minimum income guarantee will work without raising taxes

Money is what Congress' minimum income guarantee would boil down to.

The Congress has already all but committed to a nationwide farm loan waiver, says Yogendra Yadav (Representational image) | Wikimedia commons

Irrespective of its merits and eventual fate, the basic income proposal means that this election is now focused firmly on the economy.

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. So far, the election was building up towards one of the many vacuous and noisy contestations that we have witnessed in the last few years: a last-minute too-clever-by-half quota for poor upper castes, brazen attempts at stoking Hindu-Muslim conflict, now-you-see-it-now-you-don’t mahagathbandhan, cynical coalitional moves, election eve party hopping and media games of who-abused-whom.

In this context, political commitment by the largest opposition party to guarantee minimum income to all poor cannot but stand out.

Long road ahead for minimum income guarantee

MIG is not yet a game changer. At the moment it is an empty shell, a shiny cover with nothing inside. Rahul Gandhi’s speeches in Raipur and Cochin 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.

We also know, from Rahul’s tone, that this is not a casual throwaway remark, that the Congress attaches a lot of weight to this promise, that we can expect a lot in the coming days.

However, unless you are an ardent Rahul Gandhi fan and trust that he will implement whatever he promises, at the moment there is nothing to distinguish this announcement from ‘pipe dreams’ like doubling of farmers’ income.

For all these limitations, the announcement about minimum income guarantee 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 minimum income guarantee, 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 electorally powerful, but ideologically vacuous and are likely to follow the lead given by the Congress in terms of national economic policies. This leaves the BJP with little option except to match or better this proposal in the coming budget.

Over the next few weeks, the idea of MIG would be elaborated, debated, criticised and trashed. But irrespective of its merits and eventual fate, the proposal and its timing have ensured that this election is now focused firmly on the economy and that the last person will come first, at least till the elections. This is the last thing Prime Minister Narendra Modi would wish for.

Will MIG become the game changer that the Congress has been perpetually waiting for? It all depends on the design behind this idea of which we know very little as of now.

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.

Grey areas

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 MGNREGA or the right to food under NFSA? 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. Whatever the amount, the proposal can be taken seriously only when we hear something concrete in this regard.

Third, what is the mechanism for selection of the ‘poor’ eligible for this support? Surely not those who declare an income below Rs 8 lakh a year! On a more serious note, defining and identifying the poor is one of the most difficult exercises, notoriously prone to errors and frauds.

The whole point of the UBI was to avoid the problem of targeting. The Congress would need to come out with a smart and credible mechanism, different from the usual poverty eradication schemes that suffer from what Abhijit Banerjee and Esther Duflo call Poor Economics.

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?

In a scheme like MIG, the devil lies in the details. Congress spokespersons tell us that a lot of homework has gone into this announcement. That claim should be tested over the next few weeks, by the media, by experts and by the public. The last thing this country needs is another ‘jumla’ sarkar.

But more than direction and design, a proposal like MIG is about determination or political will. Is this just a pre-electoral itch which the leaders find a way to wriggle out of once they are in power? Or is the Congress willing to put money where its mouth is?

Money is what it would boil down to. Any form of MIG would cost the government big time. Arvind Subramanian has calculated that a miserly version of his UBI scheme would cost 1.3 per cent of the GDP. Professor Pranab 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 one 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 that do exist in many capitalist countries.

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.

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