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Minimum Income Guarantee is steroid, not crutch

The question then arises, why do poor remain poor? Why does poverty perpetuates in a family, generation after generation?

By Pushkal Kumar
Updated on :
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At some point around 1789 when the French queen, Marie-Antoinette, was told that her subjects had no bread to eat, she is believed to have said, “let them eat cake”! Some of the criticisms of the proposed Minimum Income Guarantee betrays similar arrogance and/or naivety.

While the response of the political class ranges from exuberant cheers to cautious silence, a section of the tax-paying chattering class has been lampooning the scheme for being a dole and a crutch aimed at keeping the poor poor.

The argument is that it encourages the beneficiaries to sit idle instead of working for a living. It ignores the fact that human wants are unlimited and are typically activated in a sequential manner. This keeps them motivated to work, at any level of income, for achieving higher goals.

The question then arises, why do poor remain poor? Why does poverty perpetuates in a family, generation after generation?

In the simplest terms poverty is defined as subsistence below a certain level of income. The most intuitive answer for the cause of poverty is likely to be unemployment. However, what is more pertinent here is low-wage employment. India has an over-supply of unskilled and semi-skilled labours. As a result, this segment is on a weak wicket in the labour market. They are forced to take up the jobs matching their skill set at an abysmally low wage, barely enough to meet their subsistence needs.

Any meaningful discussion on poverty has to aim at providing an income that is not just enough for ensuring two square meals a day, but also leaves a surplus that allows one to hope and plan for a better future. Families of maids, press wallah, street vendors etc remain poor because they are trapped in the vicious cycle of poverty. Their work yield very low wages. Low income barely meets their basic needs and hardly leaves anything for investing in the future of their children. Low investment on children’s education, nutrition, health results in inadequate abilities, learning and skills for the children to avail better employment opportunity. This forces them to take up similar low paying jobs. Thus the cycle completes and spirals to the next generation. Any argument that counts on individual inspirational stories that defied this pattern suffers from the fallacies of anecdotal evidence.

To escape from this trap these families need something over and above the subsistence level income that they can save and invest in the human capital of the next generation. Minimum Income Guarantee (MIG) will ensure two things. First, these families will have some extra income above the subsistence level that they can invest on health/education of the next generation. Second, It will place them in a better position the labour market allowing them to gets higher wage. The impact of MGNREGS on farm wages provides a strong evidence in support the second assumption.

Another argument against the MIG is that it will strain the budget and that it is not viable. Like any welfare scheme of this scale, MIG will certainly have a huge financial implications. However, if the policy makers agree on its desirability, the government can certainly make space for it in the budget. It is all about balancing the priorities. Here we need to recount a story once narrated by Pherozeshah Mehta in the Imperial Legislative Council. A well-meaning father addicted to drinking, when his wife appealed to him to do something for the education of the grown-up boys, begged of her with tears in his eyes to consider if her request was not unreasonable, when there was not even enough food and clothes for the younger children. The wife could not gainsay the fact, with hungry eyes staring before her; but she could not help reflecting that the children could have food and clothes, and education, if the kindly father could be induced to be good enough to spend a little less on drink and cards.

Targeted cash transfer to a section of society is not an outlandish idea belonging to some socialist country in Latin America. It is increasingly being seen as a well-thought-out policy choice. Raghuram Rajan calls it a safety valve for capitalism. Former Chief Economic Advisor, Arvind Subramanian believes that the agrarian distress in India has created the political opportunity for a quasi-universal basic income. He sees the potential in UBI scheme to improve the rural economy broadly.

Universal Basic Income is an idea that is being discussed, deliberated and experimented in many countries. UBI envisages a basic minimum income for everyone. This income is to be given as an entitlement and not as compensation for work. There are various models or variants of UBI that have come up in these countries, most famous being Bolsa Familia of Brazil which provides 70 reals in direct transfers to low-income households.

In India this idea entered into the public debates when in 2017 the Economic Survey weighed the possibility of introduction of UBI in India. Two states, Odisha and Telangana have already rolled out their version of income support scheme. Odisha has ‘Krushak Assistance for Livelihood and Income Augmentation’ (KALIA) and Telangana has Rythu Bandhu Scheme. Government of India in the interim budget of 2019 has also announced the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) that proposes to provide an annual grant of Rs 6,000 to farmers. These well intentioned schemes focus exclusively on farmers, and in case of Rythu Bandhu Scheme, only on land owning farmers. However, if UBI or its not-so-universal variants aim to eliminate poverty, classification of beneficiaries for the purpose of the scheme can’t be limited to farmers alone.
Minimum Income Guarantee addresses this issue by including every family in the bottom two deciles in the terms of income. However, like any non-universal scheme the proposed MIG scheme will have to grapple with this issue of inclusion and exclusion errors. This challenge needs to be taken in earnest.

At a time when stagnation in real income is quite perceptible, more so at the bottom of the pyramid, and the gap between the rich and the poor is ever widening, MIG is the New Deal that India needs. It will be a great help if we end the confusion over its desirability and internalize the idea that the Minimum Income Guarantee is not a crutch, but a steroid that will help the perpetually poor families run – at the escape velocity of Jupiter – out of the poverty trap.

Disclaimer: The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NEWSD and NEWSD does not assume any responsibility or liability for the same.


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