Income transfers to the poor have emerged as a popular policy option for governments across the world seeking to alleviate poverty. Proponents argue that income transfers efficiently allow the poor to spend on their welfare, but critics point to the sheer cost of implementing such schemes and the challenges of successfully identifying the poor.
In a new paper, presented at the India Policy Forum, Maitreesh Ghatak and Karthik Muralidharan proposed an alternative solution that addresses both these challenges: An inclusive growth dividend (IGD). Every month, the IGD would transfer the equivalent of 1% of India’s gross domestic product (GDP) per capita, around ₹500, to every household in India (roughly ₹110 per citizen).
While this amount would have a negligible effect on the rich, it can significantly boost consumption among the rural poor.
The authors estimate that the IGD can generate 10% boost in consumption for the bottom 30% of India’s rural population. The monthly transfers to bank accounts can also increase financial inclusion and build a pool of savings for the poor.
By including all citizens in the IGD, the government can also save costs on targeting and need not worry about excluding rightful beneficiaries.
The authors estimate that the total cost of the IGD would be around 1% of India’s GDP.
While this is double the cost of the ongoing PM-Kisan scheme, which transfers ₹6,000 annually to small landholding farmer families, it is significantly lower than other proposed income transfers schemes (such as the Congress’ NYAY, which would’ve cost 2.5% of GDP).
And, unlike other proposed income transfer schemes, the IGD can be implemented without disrupting existing anti-poverty programmes.
Also read: An Inclusive Growth Dividend: Reframing the Role of Income Transfers in India’s Anti-Poverty Strategy
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