Opinion | Income transfers meet Gandhian and Rawlsian ideals

The idea of cash transfers have a political consensus now. The debate is over how and how much

There is much debate about the Nyuntam Aay Yojana (NYAY), the minimum income scheme announced by the Congress party as part of its manifesto for national elections. It is only slightly different from a universal basic income, an idea to which a full chapter was devoted in the Economic Survey of 2017. In concept, it is also similar to—but also much more generous in scope and magnitude—than the Prime Minister Kisan Samman Nidhi (PM Kisan), which was announced in the Union Budget for 2019-20 and is already being implemented. PM Kisan is aimed only at farm households, and is a direct annual cash transfer of 6,000, whereas NYAY is aimed at 20% of the country’s poorest households, with an annual transfer of 72,000 each. Direct cash transfers to the poor are an idea whose time has come, and there is a political consensus on it. The questions are basically of affordability, implementability and their effect on incentives. In developed countries, less than 5% of the average household budget is spent on food, whereas in India, the average is still close to 50%. For the poor, it is much higher. Hence, a cash transfer is basically to help them pay for food, the intake of which is directly linked to poverty, as defined by the calorie norm. Direct cash transfers are easier to make than in-kind transfers of food. But, at times, both may be necessary.

India’s development journey has seen multiple and varied strategies to attack poverty. Not all of them succeeded, but it would be unfair to say that all approaches failed. These involved various combinations of production subsidies for inputs to farmers, minimum price support for output, subsidized food rations, minimum wages, jobs reservations, health and education interventions, and so on. The most rapid decline in officially measured poverty happened from 2004 to 2014, a period marked by high economic growth and also an upswing in programmes like the Right to Food and Right to (rural) Employment.

The pages of this paper have been witness to an intense debate on the Amartya Sen versus Jagdish Bhagwati doctrines on attacking poverty. Sen’s view is to enhance the capabilities of people (education, health, skills) through state support, before their participation in a market economy. Whereas Bhagwati stood for unleashing economic growth through reforms and using the dividends of that growth to enhance welfare spending. However acrimonious their debate, both agreed on the same end goal; that is, a rapid reduction in poverty.

The approach of successive Indian governments has been a combination of both growth promoting and capability building approaches. Hence, the high decibel levels of the Sen versus Bhagwati debate, or even the noise around NYAY, should not distract us from the fact that there is already a fairly high consensus. The current debate on NYAY or direct cash transfers is: (a) whether it is affordable, given the fiscal stretch; and whether it will be inflationary; (b) whether leakages can be plugged and beneficiaries can be accurately identified; whether it will lead to a mindless scramble for income certificates and consequent corruption; and (c) how to minimize its adverse incentive effects (if any) on labour force participation.

The first point is addressed by the fact that India is on a high growth path with tax revenue buoyancy and, hence, it is only a matter of time before enhanced welfare spending becomes affordable. As for targeting efficiency, a fruitful approach is to exclude non-beneficiaries, which is simpler. The more universal a scheme, the less its leakages. Of course, NYAY does not have the self-targeting feature of work requirement, as in MNREGA.

The idea of guaranteeing a certain basic income (or more generally “capabilities") to every citizen is implicit in the classic treatise of John Rawls, A Theory Of Justice. Coincidentally, it was published in 1971, the same year that Indira Gandhi launched her “Garibi Hatao" (eradicate poverty) plan, which of course did not succeed. Rawls’ theory is based on two principles: first, equal rights and maximum liberties for all (of opportunity, speech and other freedoms), but only so long as one person’s liberty does not diminish another person’s liberty; and second, allowing worsening inequality only so long as the worst-off person’s prospects are not made any worse. This second principle says thatthe well-being of society at large is judged by looking at the worst-off person. The one who is last in line. This resonates with Mahatma Gandhi, who wrote five decades before Rawls, “Recall the face of poorest and the weakest …and ask yourself, is your (policy) going to be of any use to him?…" The focus on enhancing the welfare of the poorest and the weakest is often called the “Rawlsian" notion of justice and fairness. The Rawlsian idea of bettering the prospects of the worst off stands in contrast to the utilitarian notion of raising society’s average (in terms of income growth or per-capita income). Most democracies and capitalist societies have embraced the Rawlsian idea. In a more practical sense, Joseph Stiglitz has pointed out that a dollar given to the poor ends up being spent as consumption, whereas a dollar given to the rich ends up as savings. Hence on the margin, to some extent, redistribution can be growth-enhancing. Thus, whether we take recourse to the philosophy of Rawls or Gandhi, or talk of growth maximization, the logic of cash transfers to the poor cannot be refuted. The debate is only about how and how much.

Ajit Ranade is an economist and a senior fellow at the Takshashila Institution.