Minimum Income Guarantee - Myth Or Possibility

Myth

Given the fact that elections are just around the corner, such announcements by the opposition party are perceived as vote-gaining tactics. As observed from previous promises made by Congress, they did not waive farmer loans in Chhattisgarh and Rajasthan as promised earlier. Also, this announcement was made all of a sudden and without any provision for budget or agenda on the same. This scheme is likely to be a direct transfer scheme where households will be compensated by the amount their income is short of. The implementation costs include coverage costs and substitutable schemes that can range from 0.5% to a maximum of 2.5% of the nation’s GDP. Assuming INR 18000 per year, covering 75% of the rural population at a cost of 2.64 trillion rupees. Such a large amount on social benefit is likely to never reach the masses given the state of governance in the country.

Possibility

The basic principle behind this MIG is to uplift the poor in a way that their basic needs are taken care of and they can shift their focus to education, healthcare, and jobs. This is in stark contrast to the EWS (Economically Weaker Sections) reservations which the poor are most likely to not benefit from. This scheme sounds highly promising as the actual fiscal costs associated with it may be lower than stated above. This is owing to the replacement of the existing schemes and subsidies in place. Combined with the ease of direct cash transfers, this Minimum Guaranteed Income program, although politically challenging, can be achievable.

Concluding remarks

Although the MIG program looks like a ray of hope and implementation seems a piece of cake, yet the macroeconomic implications of such a huge initiative cannot be ignored. Such a bold move without the backing of enough revenues will expose the nation’s economy to fiscal risks. It might end up creating an imbalance as a rise in consumption leads to further inflation, thus worsening the financial position of the country by raising risk premium and depleting current account balances. As a result, the implementation of such a large scale program needs backing in revenues and a well-planned agenda with coping measures underlined before it reaches the implementation stage. As a result, it might as well remain just a pre-election hype.