Help poor and not-so-poor

While the worst of the Covid-19 pandemic is behind us, there has been a decline in general purchasing power. During the pandemic, the Indian government initiated the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). This gave 5 kg of free food grains to beneficiaries of the National Food Security Act and effectively doubled the monthly entitlement. Extended until December 2022, its withdrawal in the near future will reduce the benefits by half, a blow to poor and vulnerable households.

There has been a general increase in prices, visible in the Ministry of Statistics and Programme Implementation (MoSPI) estimates. Provisional inflation rates for September 2022 (on a point-to-point basis, i.e., the current month over the same month last year) for the Consumer Price Index (rural and urban) are 7.41 per cent. This is much higher compared to 4.35 per cent for September 2021. More importantly, the Provisional Consumer Food Price Index (combined for rural and urban) for September 2022 is pegged at 8.6 per cent, a huge increase compared to 0.68 per cent for September 2021.

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The latest Periodic Labour Force (PLFS) quarterly survey of April–June 2022 provides data on the situation of urban employment. It shows stagnation in the urban labour force participation rate (Current Weekly Status, all ages) at 37.2 per cent in the last three quarters; the global average is 61 per cent. Simultaneously, the urban unemployment rate by Current Weekly Status still remains high at 7.6 per cent (all ages) and is even higher at 18.9 per cent for youth (15–29 years). One in every five urban youths is unemployed. These factors point towards stagnation and jobless growth.

Given the situation of employment and prices, the withdrawal of food security after December 2022 could increase the vulnerability of households. Cash-based assistance is now more required than ever in India and is feasible with the Direct Benefit Transfer system in place. A Minimum Income Guarantee (MIG) will not just act as a cushion to exogenous shocks; it will also arrest the process of vulnerability begetting vulnerability. We suggest a transfer that keeps fiscal considerations and efficiency in mind. At the same time, the proposed transfer will be just sufficient to reduce vulnerability without any threat of a leftward shift of the labour-supply curve.

The proposed transfer is an improvement over existing cash transfer schemes in India. India’s existing cash-transfer experience remains restricted to at best three schemes, all targeting only landed farmers, the most significant being PM-KISAN. Launched by the central government in 2019, PM-KISAN assists landholding owner-cultivator families with Rs 6,000 a year. However, the government further relaxed the landholding criteria to include large farmers as well.

The glaring issues with PM-KISAN, however, threaten to outweigh the advantages of a well-designed MIG. First, PM-KISAN only reaches landholding cultivators and large farmers whose names are entered in land records. This directly leads to the exclusion of tenant farmers and landless labourers, a more vulnerable and growing segment of the population.

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Second is the issue of land records being rarely updated and the varying quality of data across states. Third, and most important, is the identification of beneficiaries. Instead of visible, verifiable data, PM-KISAN considers families as the unit, for which no data exists. When two or more families reside together in a household, like large rural joint families, the same household receives multiple income grants (including multiple PM-KISAN transfers).

We therefore suggest a way to avoid such inclusion and exclusion errors and widen the coverage of income support. Amid rising fiscal concerns and an estimated fiscal deficit of 10 per cent (Union and State governments combined), our proposed MIG can replace PM-KISAN as a more targeted and inclusive strategy at a comparable cost. We make it more progressive by covering over 3/5 of India’s rural population, which will also include the intended beneficiaries under PM-KISAN, leaving no vulnerable section behind.

Our proposal covers households as the unit, and identification of beneficiaries is based on observable, verifiable characteristics using the 2011 Socio-Economic Caste Census (SECC-2011). This provides data on 17.97 crore rural households. Of this, we omit 7.07 crore “automatically excluded households” based on 14 parameters of exclusion (39.35 per cent of all rural households). Out of the remaining, we suggest that 15.9 lakh households are “automatically” included as long as they fulfil any of five parameters of inclusion.

We also include 5.36 crore households with at least one of the following deprivations: one or fewer rooms, kuccha walls, and roof; no adult member in the household between the ages of 18 and 59; female-headed with no adult male member; a differently-abled member with no other able-bodied adult member; SC/ST households; no literate adult above the age of 25; and landless households with a major source of income from manual labor. To be fair and inclusive, we include those with just one deprivation and also those not well-to-do enough to be automatically excluded.

Our proposed MIG can thus cover 10.9 crore rural households (60.65 per cent of rural households). We propose that the amount of cash transfer be proportional to the level of deprivation experienced by households. To enable a fiscally feasible graded cash transfer, we present three scenarios, each introducing a less vulnerable category.

We propose Scenario A, which covers 0.16 crore “automatically included rural households,” plus 5.37 crore “rural households with multiple deprivation,” and also 1.31 crore urban slum households. They are offered Rs 8,000, Rs 6,000, and Rs 3,000, respectively. Expenditure in Scenario A (for the most vulnerable) amounts to Rs 37,430 crore, constituting just 0.16 per cent of India’s GDP.

In Scenario B, we additionally include 3.36 crore rural households with only one deprivation. If given Rs 4,000 per annum, the cost incurred will be Rs 50,870 crore, or 0.22 per cent of India’s GDP.

Finally, in Scenario C, we propose including 2.01 crore households that are neither well-off nor socioeconomically deprived. At Rs 3,000 per annum per household, total expenditure in Scenario C turns out to be Rs 56,900 crore (0.25 per cent of India’s GDP).

From Scenario A (highest vulnerability) to Scenario C (near universality), we present the option of a graded cash transfer to India’s most vulnerable populations. With each additional inclusion, the costs increase. However, the quantum of money to be transferred is kept low to mitigate any adverse impact on labour supply and also contribute to reducing vulnerability. Even in the near universal case, our proposal seeks to transfer Rs 56,900 crore annually. This is much below the total cost of PM-KISAN, with an estimated budgeted amount of Rs 68,000 crore, which is regressive, as we noted above. Most importantly, our proposal, based on observable criteria, covers a much larger vulnerable population at a much lower cost.

(Mehrotra is Professorial Senior Fellow, Nehru Memorial Museum and Library, New Delhi; Rajgopalan is an independent scholar; Ranjan teaches Economics at JK Lakshipat University, Jaipur)