On Monday, Rahul Gandhi — the leader of India’s National Congress Party and as such the primary challenger to Prime Minister Narendra Modi in this year’s national elections — announced a big new part of the party’s platform: a minimum income for poor Indians.
We cannot build a new India while millions of our brothers & sisters suffer the scourge of poverty.
If voted to power in 2019, the Congress is committed to a Minimum Income Guarantee for every poor person, to help eradicate poverty & hunger.
This is our vision & our promise.
— Rahul Gandhi (@RahulGandhi) January 28, 2019
“We have taken a decision that every poor person in India, after Congress forms government in 2019, will be guaranteed minimum income,” Gandhi (the son of former Prime Minister Rajiv Gandhi and former Congress leader Sonia Gandhi, the grandson of Prime Minister Indira Gandhi, and the great-grandson of India’s first Prime Minister Jawaharlal Nehru) announced in a speech in the city of Raipur. “Every poor person in India will receive at least minimum income in their bank accounts from the government. There will be no more hunger or poverty.”
Details on the plan so far are scarce. Sources in the Congress party told the Business Standard newspaper that their forthcoming electoral manifesto would answer key design questions, “including whether [minimum income guarantee, or] MIG be a statutory right, how much would be ‘minimum’, the mechanism to select beneficiaries and the budget, including from where the government would raise additional resources, and whether existing benefits would be get subsumed in MIG.”
To be clear, what Gandhi is proposing is not a full universal basic income. An MIG would be targeted at low-income households, which raises additional questions about what the threshold for eligibility would be, how payments would phase out as beneficiaries earn more, or if another targeting mechanism not requiring knowledge of every beneficiary’s income would be used to target poor households.
The vast majority of Indians work in the informal sector — in unincorporated businesses that don’t keep books or aren’t registered with the government, or both — which makes tracking income for the purpose of means-tested aid programs difficult.
One option, proposed by Arvind Subramanian (the former chief economic adviser to Prime Minister Modi) and colleagues would be to direct a basic income only to rural households. They proposed a benefit of 18,000 rupees a year (about $1,015 a year), excluding demonstrably rich households. Depending on if and how that benefit scales for larger households, it could go a long way toward reducing $1.90 a day poverty, the World Bank’s current extreme poverty threshold.
Prashant Bhushan, a prominent Indian public interest lawyer, proposed implementing the plan as a nationwide, all-adults expansion of the National Rural Employment Guarantee Scheme, a job-guarantee program that supports rural farmers during the dry season.
We calculated that funds for this virtually minimum income guarantee scheme could be raised by removing corporate exemptions, removing some existing wasteful subsidies, imposing a wealth tax of 1-2% on the wealthy, and 20% inheritance tax and gift tax.Would create a welfare State
— Prashant Bhushan (@pbhushan1) January 29, 2019
Universal basic income is a mainstream idea in India
Universal basic income (UBI) burst to the forefront of Indian political debate in January 2017, when Subramanian — at the time still Modi’s top economic adviser — issued a report as part of the national economic survey calling for the policy’s adoption as a replacement for various food and fuel subsidy programs (and perhaps the job-guarantee program too).
Critics argue those subsidies are extraordinarily inefficient — by one government estimate, 36 percent of spending on food subsidies never makes it to a single household, 36 percent goes to people not in poverty, and only 28 percent goes to poor people — which raises the obvious question of whether scrapping it all and using the money to just give out cash would be better.
According to Subramanian’s report, spending a mere 2 percent of GDP on a UBI of 200 rupees ($11.28) per person per month could cut the extreme poverty rate from 22 percent to 7 percent. A benefit of 400 rupees ($22.56) per person per month could cut the rate to below 1 percent.
That would represent the biggest one-off reduction in poverty in human history, liberating hundreds of millions of people from extreme deprivation. Of course, beneficiaries would still have a long way to go before being fully financially secure. The Indian poverty line being used in Subramanian’s analysis was very low — 893 rupees per person per month, or $50.37 — and many, many people above it would still be poor by American standards. But eradicating $1.67-a-day poverty would be an immense and worthwhile achievement all the same.
Subramanian has since left the government, and Modi’s government has shown little sign of implementing his idea. Without more details on the size or targeting of Gandhi’s proposal, it’s hard to estimate the effect of the opposition’s proposal on poverty rates, or to say if it will have a bigger or smaller impact than Subramanian’s UBI idea or his more recent targeted rural UBI idea. And Gandhi, it must be noted, is trailing Modi in most opinion polls.
But there’s reason to be optimistic. India has been eradicating extreme poverty at a breakneck pace. By one estimate, the number of people living under $1.90 a day fell from 268 million in 2011 to less than 50 million today. That follows decades of prior progress; the poverty rate, in $1.90 a day terms, fell from 61.6 percent in 1977 to 21.2 percent in 2011.
Most of this change is attributable to economic growth, but India could get even faster poverty reduction if growth was supplemented with progressive taxes and transfers. Gandhi’s proposal — and any rival plans that Modi and his BJP might be tempted to offer in response — could go a long way in assisting the effects of growth.
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