BY SAKSHAM KHOSLA
Saksham Khosla is a first-year International Development concentrator at SAIS and an editor at SAIS Perspectives. He previously conducted research on social protection, governance, and financial inclusion in India at the Carnegie Endowment for International Peace and Carnegie India.
An announcement for a minimum income guarantee for the poor by the leader of India’s main opposition party, coming days before Prime Minister Narendra Modi’s administration unveils its own income support plans in the interim budget, certainly makes for good politics. India’s national elections are only months away, and politicians across party lines are discussing large-scale direct cash transfers to secure the votes of two key constituencies – the farmers and the poor. But does a minimum income guarantee 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 the state of Telangana’s program to provide farmer investment support, or farm loan waivers. By virtue of India’s size, any nationwide minimum income support program will be the world’s largest, and its design and implementation will be watched closely by international policymakers debating a basic income in their own countries. But with the Congress Party’s leadership remaining tight-lipped about the plan’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 endeavor are a challenge, as are its political economy implications – just imagine neighbors comparing their respective payouts and finding unexpected results.
More broadly, depending on the size of the transfer and its associated financial burden, the financing choices made will be key to determining the program’s desirability. Will regressive programs like fertilizer subsidies, which distort input, price, and trading decisions and benefit large farmers, be put on the chopping block? Or will relatively well-functioning parts of the safety net such as the food security program, which has improved coverage and reduced leakage in recent years, be cut to make fiscal space?
Second, how will recipients be identified? The program’s framing so far indicates that the poor will be targeted, but the use of Below Poverty Line cards, Socio-Economic Caste Census (SECC) data, or other forms of geographical or categorical targeting methods comes with varying trade-offs and levels of targeting efficiency. In contrast, several economists, including most recently former Chief Economic Advisor Arvind Subramanian, have suggested the use of exclusion criteria, like the presence of a government employee in a household based on updated SECC lists, as a more administratively feasible mechanism to target ‘out’ the obviously affluent rather than targeting ‘in’ the genuine poor.
Finally, how does the transfer reach beneficiaries? If the answer is bank accounts linked to recipients’ unique biometric ID, or Aadhaar number, then the proposed program must clearly articulate measures undertaken to prevent transaction and authentication failures, issues with Aadhaar numbers missing from program databases, and malfunctioning point-of-sale technology – problems that have plagued Aadhaar use across a variety of welfare programs.
Can the Congress design a well-targeted cash transfer, financed by cutting wasteful government expenditure, and implemented with full awareness of state capacity constraints? That is the minimum guarantee India’s poor deserve.
This is a modified version of an article that was originally published in ThePrint.