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Economy

Instead of Withdrawing Food Security, a Minimum Income Guarantee Is Needed

A Minimum Income Guarantee would not just cushion exogenous shocks, but would arrest the process of vulnerability begetting vulnerability.

While the worst of the pandemic is behind us, there has been a decline in general purchasing power amidst inflation. The provisional Consumer Food Price Index (combined for rural and urban) for September 2022 is pegged at 8.6%, a huge increase from 0.68% for September 2021.

The latest Periodic Labour Force Survey (PLFS) shows that simultaneously, the urban unemployment rate by Current Weekly Status still remains high at 7.6% (all ages) and is even higher at 18.9% for the youth (15-29 years). One in every five urban youth is unemployed. These factors signal stagnation and jobless growth.

Given the situation, withdrawal of food security after December 2022 could increase the vulnerability of households. Cash-based assistance is required more than ever, and is feasible with the Direct Benefit Transfer system in place. A Minimum Income Guarantee (MIG) would not just cushion exogenous shocks, but would arrest the process of vulnerability begetting vulnerability. We suggest a transfer which keeps fiscal considerations and efficiency in mind. The proposed transfer would be just sufficient to reduce vulnerability, with no danger of a leftward shift of the labour supply curve.

The proposed transfer is an improvement over the existing three cash transfer schemes in India, all targeting landed farmers, the most significant being PM-KISAN. Launched by the Union government in 2019, it assists landholding owner-cultivator families with Rs 6,000 per year. However, the government further relaxed landholding criteria to include big farmers as well.

The glaring issues with PM-KISAN however threaten to outweigh the advantages of a well-designed MIG. First, PM-KISAN only reaches landholding cultivators and big farmers whose names are entered in land records, excluding the vulnerable and growing segment of tenant farmers and landless labourers. Second, land records are rarely updated and the quality of data varies across states. Third, and the most important, is the very identification of beneficiaries. Instead of visible verifiable data, PM-KISAN considers families as the unit, for which no data exists. When two or more families reside together in a household, as in large rural joint families, the same household receives multiple income grants (including multiple PM-KISAN transfers).

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Amidst rising fiscal concerns and an estimated fiscal deficit of 10% (Union and states combined), our proposed MIG can replace PM-KISAN as a more targeted and inclusive strategy at comparable cost. We make it more progressive by covering over 3/5 of India’s rural population, including intended beneficiaries of PM-KISAN.

Our proposal covers households as the unit, and the identification of beneficiaries is based on observable, verifiable characteristics using the Socio-Economic Caste Census (SECC-2011). This provides data on 17.97 crore rural households. Of this, we omit 7.07 crore “automatically excluded households” based on 14 parameters of exclusion (39.35% of all rural households). Out of the remaining, we suggest that 15.9 lakh households are “automatically” included as they fulfil any of five parameters of inclusion.

We further include 5.36 crore households with over one (of seven) deprivations: one or less rooms, kuccha walls and roof; no member in the household aged 18-59; female-headed with no adult male member; a differently-abled member with no other able-bodied adult member; SC/ST households; no literate adult above 25; and landless households with major income from manual labour. To be fair and inclusive, we include those with just one deprivation and also those not prosperous enough to be automatically excluded.

Our proposed MIG can thus cover 10.9 crore rural households (60.65% of rural households). We propose that the amount of cash transfer should be directly proportional to the deprivation suffered by households. To enable a fiscally feasible graded cash transfer, we present three scenarios, each introducing a lesser vulnerable category.

From Scenario A (lower coverage) to Scenario C (near universality), we present the option of a graded cash transfer to India’s most vulnerable populations. With each additional inclusion, costs increase. However, the quantum of money to be transferred is kept low, to mitigate any adverse impact on labour supply, but also contribute to reducing vulnerability. Our proposal even in the near-universal case seeks to transfer Rs. 56,900 crore annually. This is much below the cost of PM-KISAN, with an estimated budgeted amount of Rs 68,000 crore, which is regressive, as we noted above. Most importantly, our proposal covers a much wider vulnerable population based on observable criteria at a much lower cost.

Santosh Mehrotra is Professorial Senior Fellow, Nehru Memorial Museum and Library, New Delhi; Anjana Rajagopalan is an independent scholar; Rakesh Ranjan teaches Economics at JK Lakshmipat University, Jaipur.

This article was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.