In a historic move, Rajasthan has passed the Minimum Guaranteed Income Bill. Critics argue that it will pose huge fiscal challenges and therefore it may produce cosmetic changes only. It is argued that the already high state debt of about 40% of GSDP will further burgeon and put a burden on future generations. Given today’s competitive politics, other state governments will also be under pressure to follow suit before the coming assembly and national elections. Thus, the budgetary arithmetic of the country will deteriorate. Were similar arguments not advanced in the mid-2000s when rights like MGNREGS and the right to food were proposed?
The ruling party at the Centre feeling threatened has been derisively characterising such schemes as revdis or freebies. Can all the schemes for public welfare be tarnished with the same brush? Different schemes serve diverse social purposes. Some of them provide public services while others are essential for the poor to survive. Schemes enabling good education and health are essential public services. Giving money to the unemployed or pension to the elderly and destitute provides them sustenance. Such schemes enable society to fulfil its constitutional obligation of the right to life.
Schemes that give the voters cycles, gas cylinders, laptops and so on help the recipients ease their lives but are not essential. A cheap gas cylinder liberates a woman from the unhealthy smoky wood-fired chulha. A cycle for a girl child makes it easier for her to attend school. A laptop may enable a child to learn better. But, such goods may not be the first choice for the family. If they had adequate income, they could prioritise what they needed most – not necessarily what is offered in election season.
Also Read: Gig Workers’ First Major Victory in India: Rajasthan Leads the Way
Inadequate trickle down
Income is the key to people’s welfare. If they have adequate income to live a civilised existence, they would not have to depend on the government to give them things other than public services. To have an income, people need work in the market. Thus, employment is the key to the issue of people’s welfare. In the ‘Report on Employment and Unemployment in India’ released in October 2022, it was pointed out that while 320 million may have some proper work, 280 million do not have proper work.
Effectively, those who have some proper income have to support three others in the family. This is a huge burden on those working and also results in family poverty. If the 280 million who do not have proper work in the market were to get work, family poverty would immediately decline – because then each working person would have to support only one other.
Poverty and unemployment are not ordained by nature but are a result of national policies. In an attempt to copy Western modernity, India has since Independence pursued trickle-down policies based on top-down approach. This has resulted in the well-off prospering with little trickling down to the marginalised. The top-down approach promoted modern industries and infrastructure that are mechanised and increasingly automated. These constitute the organised sector of the economy, which offers good jobs but only employs 6% of the workers. The rest have to work in the unorganised sector at low incomes. The result has been inadequate employment generation for the fast-expanding population, persistence of poverty and stress for the vast majority. Rajasthan is one of the states where such problems are evident.
This marginalisation of the majority also results in the economy growing slowly. With the masses (94% of the workforce) lacking adequate purchasing power, demand tends to remain low and so does the rate of growth. Only when exports do well or the government introduces rights-based programmes that growth gets a boost. The latter happened during 2004-09.
Even prior to the onset of the COVID-19 pandemic in 2020, the quarterly rate of growth had dropped from 8% to 3% due to the impact of demonetisation and a structurally flawed GST, both of which severely impacted the unorganised sectors. Unfortunately, the official data does not capture this decline since it is largely based on the performance of the organised sector.
In brief, the actual situation of the marginalised is far worse than what the official data reflects. That is why the Minimum Guaranteed Income Bill is timely.
Provisions of the Bill
The Rajasthan Minimum Guaranteed Income Bill seeks to immediately offer support where it is needed the most – to the unemployed, the elderly and the disabled. It provides for:
- An additional entitlement of 25 days per rural family for work under MGNREGS. The additional funds required to be provided by the state
- 125 days of work to one member of a family under an urban employment programme
- A pension of Rs 1,000 per month for all elderly, widowed and disabled persons. This is much more than what has been on offer till now.
Rajasthan will be the first state in the country to enhance the legal entitlement under MGNREGS by 25 additional days. Also, it would be the first time that a state is by law guaranteeing a minimum pension which will rise by 15% annually (not just indexed to inflation). Critics argue that this provision is inadequate. Further, they argue, an urban employment scheme will be difficult to implement and will lead to greater urbanisation. But, that is what the World Bank and the Union government are pushing for. So, the critics are contradicting themselves.
A provision of Rs 2,500 crore has been made for the implementation of the provisions in the Bill. This may be inadequate and allocations will have to be enhanced in the coming years.
Representative image of a labourer at work in Rajasthan. Photo: Eric Parker/Flickr (CC BY-NC 2.0)
Is it fiscally profligate?
The critics argue that the proposals will lead to the swelling of the already high debt of the state and increase the interest burden on the budget, which will reduce the availability of funds for capital expenditure and other developmental activities. But, why is taking care of the poor not a developmental activity?
Anytime schemes for the poor are announced, the pro-business lobby gets active and calls them fiscally profligate. When concessions and subsidies are announced for businesses, they are given the positive spin of ‘incentives’ to promote business. It is said that they will generate work and incomes, which will boost the economy.
The debate hinges on the issue of whether incentives for businesses will boost the economy, even if demand is short. Evidence is that it does not. Demand is crucial for better capacity utilisation, increased investment and higher growth rate and employment generation.
Two issues arise. Are resources available for funding such schemes? And, are there spin-offs of such schemes?
Funds in the budget are fungible. They can be spent on any item, depending on the prioritisation in the budget – a political issue. If public services and employment are given a high priority, funds will become available. After all, poverty and unemployment are not naturally ordained. They are a consequence of the economic policies determined by the ruling elite. Their priority is to grab resources for themselves – leaving little for the marginalised. Further, unemployment benefits them by keeping wages down so that they get cheap labour for their homes and businesses.
In brief, the issue is not of resource shortage but of political priority for the schemes for the poor. When votes matter, politicians propose such schemes. One policymaker from the World Bank stable suggested in 1993 that the government can pursue anti-poor policies till mid-way to the next elections and after that cater to the poor. In other words, the poor are enticed closer to the elections but no permanent solution to end their marginalisation is implemented.
The second issue, the spin-offs from the proposed schemes are obvious. Mass demand will increase and a better-trained and healthier workforce will be available for the economy. Consequently, people will lead a more civilised existence and become more productive.
As demand rises, the organised sector will also do better. Since most of the taxes are collected from the organised sector, whether direct taxes or indirect taxes, the government will get more revenue. Indirect taxes are regressive but most of the GST is collected from the organised sector. The unorganised sector is outside the pale of GST. In effect, the initial rise in the budgetary deficit will give way to a more balanced budget.
Conclusion
Political parties are likely to follow suit and the promises being made by the Rajasthan government will get generalised in the economy, with states likely to implement similar schemes. This was seen prior to the 2019 elections – when state governments and the Centre vied with each other to initiate income support to the farmers.
If the schemes are only implemented in Rajasthan, the expansion of demand in the state will leak out. In that case, its revenues would not rise sufficiently to cover the deficit over time.
Further, as pointed out above, poverty and unemployment are not naturally ordained but an outcome of the policies being pursued. So, the issue is not of shortage of resources but of lack of political will. The Rajasthan government has shown the will, even if it is due to the coming elections, to help the marginalised in the long run by passing the Minimum Guaranteed Income Bill.
Arun Kumar is the author of Indian Economy since Independence: Persisting Colonial Disruption and Indian Economy’s Greatest Crisis: Impact of Coronavirus and the Road Ahead.
