Rahul Gandhi’s announcement is certainly good politics, but does it make for good economics?
Congress president Rahul Gandhi’s announcement on a minimum income guarantee for the poor, coming days before the Narendra Modi administration unveils its own income support plans in the interim budget, certainly makes for good politics. But does it make for good economics?
With the stress on farmer incomes and rural wages reaching crisis proportions, efforts to loosen the constraints on household budgets were long overdue. A targeted cash transfer holds the highest potential for being a progressive intervention compared to the other options on the table, such as Rythu Bandhu-style investment support or farm loan waivers. But with the Congress leadership remaining tight-lipped about the scheme’s fine print, how should we determine its effectiveness?
There are three primary considerations for a targeted cash transfer of this scale: cost and financing, targeting, and delivery.
First and foremost, the Congress’ proposal makes a significant departure from prior basic income proposals in India by not offering a uniform payout. Instead, it would demarcate a certain income level as a “minimum income”, and all households earning below this level would be provided with a cash transfer the size of their income deficit. Perhaps, the biggest question about this feature is: how?
That there is a paucity of income data in India is a wild understatement with administrators having a patchy record at identifying the poor, let alone the extent of their poverty. The non-trivial administrative costs of such an endeavour are a challenge, as are its political economy implications – just imagine neighbours comparing their respective payouts and finding unexpected results.
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