Mains Paper 3: Economy | Inclusive growth & issues arising from it.
From UPSC perspective, the following things are important:
Prelims level: MIG
Mains level: Why there is a need of income support and how ut can be mobilised!
The idea of a minimum income guarantee (MIG) has caught up with political parties. With the promise of the Nyuntam Aay Yojana (NYAY) by the Congress party, it is clear that the MIG is going to be a major political issue for the coming general election.
What is MIG?
- A MIG requires the government to pay the targeted set of citizens a fixed amount of money on a regular basis.
Income guarantee schemes at present
- A limited version of the MIG in the form of the PM KISAN Yojana is already being implemented by the NDA government at the Centre.
- State governments in Odisha and Telangana have their own versions of the MIG.
What is Nyay
- NYAY is the most ambitious of these MIG schemes. It promises annual income transfers of ₹72,000 to each of the poorest five crore families comprising approximately 25 crore individuals.
- If implemented, it will cost the exchequer ₹3.6 lakh crore per annum.
Concerns regarding such income guarantee scheme
- Is there a case for additional spending of such a large sum on the poor? The answer is yes.
- Can government finances afford it? No.
- Even if the government can mobilise the required sum, is the scheme a good way of spending money on the poor? No.
The situation of the marginalised section
A.Situation of farmers
- Many landless labourers, agricultural workers and marginal farmers suffer from multi-dimensional poverty.
- Benefits of high economic growth during the last three decades have not percolated to these groups.
- Welfare schemes have also failed to bring them out of destitution.
- They have remained the poorest of Indians.
- Contract and informal sector workers in urban areas face a similar problem.
- Due to rapid mechanisation of low-skill jobs in the construction and retail sectors, employment prospects for them appear increasingly dismal.
Problems faced by the marginalised section
- These groups are forced to borrow from moneylenders and adhatiyas (middlemen) at usurious rates of 24-60% per annum.
- For instance, for marginal and small farmers, institutional lending accounts for only about 30% of their total borrowing.
- The corresponding figure for landless agricultural workers is even worse at 15%.
The relevance of Additional Government spending
- There is a strong case for direct income transfers to these groups.
- The additional income can reduce their indebtedness and help them get by without falling into the clutches of the moneylender.
Constraints due to limited finances
- However, the fiscal space is limited.
- No government can afford it unless several existing welfare schemes are converted into direct income transfers, or the fiscal deficit is allowed to shoot up way above its existing level, 3.4% the GDP.
Effects of income guarantee
- On the one hand, income transfers will surely reduce income inequalities and help bring a large number of households out of the poverty trap or prevent them from falling into it in the event of shocks such as illness or death of an earner.
- The poor spend most of their income, and a boost in their income will provide a boost to economic activities by increasing overall demand.
B. On workers
- In principle, the income supplement can come in handy as interest-free working capital for several categories of beneficiaries such as fruit and vegetable vendors and small artisans, and promote their businesses and employment.
C. On health and education
- Studies show that even a small income supplement can improve nutrient intake at high levels of impoverishment.
- Besides, it can increase school attendance for students coming from poor households.
- This would mean improved health and educational outcomes, which in turn will make the working population more productive.
- Moreover, with a modest income support the risk of beneficiaries opting out of the workforce will also be small.
- Besides, a moderate income support can be extended to a larger set of poor households. For the lowest 40% (about 10 crore households), income is less than their consumption expenditure.
- On the other hand, large income transfers can be inflationary, which will hurt the poor more than the rich.
- At the same time, large cash transfers can result in withdrawal of beneficiaries from the labour force.
- A MIG can also provide legitimacy to the state’s withdrawal of provisions of the basic services.
- the SECC along with the Agriculture Census of 2015-16 can help identify a larger set of poor based on verifiable criteria; namely, multidimensional poverty, landlessness and the marginal farmer.
- Together, these criteria cover the bottom 40%, approximately 10 crore households.
- Drawing upon the experiences with the poor-centric welfare schemes such as MNREGA, Saubhagya and Ujjwala and PM-KISAN, datasets can be prepared and used to update the list of needy households.
- For these 10 crore households, to start with, the scheme will require ₹1.5 lakh crore per annum.
- Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment.
- Therefore, the cost will have to be shared by the States. Still the scheme would have to be rolled out in phases, as was done for MGNREGA.
- All considered, no income transfer scheme can be a substitute for universal basic services
- The direct income support to the poor can deliver the intended benefits only if it comes as a supplement to the public services such as primary health and education.
- This means that direct transfers should not be at the expense of public services for primary health and education.
- Moreover, universal health and life insurance are equally important, and so is the case with crop insurance.
- Each year, medical shocks and crop failures push many families into the poverty trap.
- The scope of Ayushman Bharat needs to be expanded to include outdoor patient treatments. The PM Fasal Bima Yojana can be made more comprehensive by providing free and wider insurance coverage.