Minimum Guaranteed Income: Experts wary of the 'design' of such a scheme

Experts say that while announcing such a scheme is easier, the challenge is in getting the design of the scheme correct.

Rahul Gandhi's minimum guaranteed income, no doubt, has stolen a 'political' march over the BJP ahead of the parliamentary elections, but the question is: If it is good economics? How would a minimum guaranteed scheme pan out for the government finances?

Experts say that while announcing such a scheme is easier, the challenge is in getting the design of the scheme correct.

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Pronab Sen, economist and former chief statistician of India, says, as an idea there is nothing wrong, but the real challenge is the scheme's design, which he says, if the government gets wrong then it could have very negative consequences. 

The biggest challenge, he says, is identification of the poor. "How are you going to do it? It has always been a problem to identify the poor and there are a lot of people who simply get left out."

Then another question is whether to give the benefit by households or by individuals. "You can have a one-person family and a 20 person family as well. Are you going to treat them as same? This could lead to a lot of heart burn and social disruption," says Sen.

Then there are issues of fiscal viability of such a scheme. What could be the cost of such a scheme to the exchequer? Already, different subsidies cost the government Rs 2.64 lakh crore in 2017-18, out of which food and fertiliser subsidies accounted for Rs 2 lakh crore. The government allocated around Rs 50,000 crore to National Rural Employment Guarantee Scheme (NREGA), another welfare scheme of the government, in 2017-18

"Universal Basic Income (UBI) is fiscally unviable if it ensures a reasonable amount of income to the needy," says economist Arvind Virmani, who was chief economic adviser under UPA government from 2007 to 2009.

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One school of thought is to withdraw some of the existing subsidies to poor and give it in the form of cash. But the issue is also about which subsidies to withdraw. Should the government instead roll-back NREGA?

"Withdrawing NREGA is a bad idea for minimum income guarantee. If the (new) scheme works then people may not come to NREGA, which is basically a safety net. When people do not have income then they go to MNREGA for some income. You cannot pull away a safety net," says Pronab Sen.

He though believes the government can get rid of the Public Distribution System (PDS) to implement the guaranteed income scheme.

Virmani, who feels the scheme is fiscally unviable, instead suggests direct cash transfer to the poor equal to the difference between their income and the poverty line. Though he says the major challenge would be to ensure that every one who is poor, as identified by major welfare programmes (PDS, MNREGA etc) has an Aadhar linked to a cell phone wallet or bank account.

But unlike Sen, Virmani believes that some of the existing welfare programmes like PDS and NREGA can be withdrawn for any new direct cash transfer scheme. He says even farm based subsidies can be withdrawn and farmers can be covered over and above the  traditional poor. For this, he says the government will have to use a new higher poverty benchmark.

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