Editorial Simplified: Pathways to an Income Guarantee

Relevance: GS Paper III (Environment)

Theme of the Article

There is a compelling case for spending ₹3.6 lakh crore on the poor, but it must be done carefully.

Why has this Issue Cropped Up?

The idea of a minimum income guarantee (MIG) has caught up with political parties. Congress party has promised Nyuntam Aay Yojana (NYAY).

Limited Version of MIG

  • A limited version of the MIG in the form of the PM KISAN Yojana is already being implemented by the NDA government at the Centre.
  • State governments in Odisha and Telangana have their own versions of the MIG.


  • NYAY is the most ambitious of these MIG schemes.
  • It promises annual income transfers of ₹72,000 to each of the poorest five crore families comprising approximately 25 crore individuals.
  • If implemented, it will cost the exchequer ₹3.6 lakh crore per annum. Important questions Several questions arise.

Need of a MIG

  • Many landless labourers, agricultural workers and marginal farmers suffer from multi-dimensional poverty.
  • Benefits of high economic growth during the last three decades have not percolated to these groups.
  • Welfare schemes have also failed to bring them out of destitution. They have remained the poorest of Indians.
  • Contract and informal sector workers in urban areas face a similar problem. Due to rapid mechanisation of low-skill jobs in the construction and retail sectors, employment prospects for them appear increasingly dismal.
  • These groups are forced to borrow from moneylenders and adhatiyas (middlemen) at usurious rates of 24-60% per annum.
  • Thus, there is a strong case for direct income transfers to these groups. The additional income can reduce their indebtedness and help them get by without falling into the clutches of the moneylender.

Limited Fiscal Space for a MIG

  • However, the fiscal space is limited. The Congress’s scheme will cost about 1.92% of the GDP.
  • No government can afford it unless several existing welfare schemes are converted into direct income transfers, or the fiscal deficit is allowed to shoot up way above its existing level, 3.4% the GDP.

Possible Impacts of MIG

  • Income transfers will surely reduce income inequalities and help bring a large number of households out of the poverty trap or prevent them from falling into it in the event of shocks such as illness or death of an earner.
  • The poor spend most of their income, and a boost in their income will provide a boost to economic activities by increasing overall demand.
  • On the other hand, large income transfers can be inflationary, which will hurt the poor more than the rich.
  • The effect of cash transfers on the workforce is also a moot point. In principle, the income supplement can come in handy as interest-free working capital for several categories of beneficiaries such as fruit and vegetable vendors and small artisans, and promote their businesses and employment.
  • At the same time, large cash transfers can result in withdrawal of beneficiaries from the labour force.
  • A MIG can also provide legitimacy to the state’s withdrawal of provisions of the basic services.

Way Forward

  • The scheme should be launched in incremental steps. An income support of, say, ₹15,000 per annum can be a good start. This amount equals 30% of the annual income of marginal farmers; and more than one-fourth of the average consumption of the poorest 40% of households.
  • The Socio-Economic and Caste Census (SECC) along with the Agriculture Census of 2015-16 can help identify a larger set of poor based on verifiable criteria; namely, multidimensional poverty, landlessness and the marginal farmer.
  • Drawing upon the experiences with the poor-centric welfare schemes such as MNREGA, Saubhagya and Ujjwala and PM-KISAN, datasets can be prepared and used to update the list of needy households.
  • The PM KISAN Yojana can be aligned to meet a part of the outlay.
  • Moreover, the tax collection would need to be increased by reintroducing the tax for the super-rich.
  • Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment. Therefore, the cost will have to be shared by the States.
  • The scheme would have to be rolled out in phases, as was done for MGNREGA.
  • No transfer scheme can be a substitute for universal basic services. The direct income support to the poor can deliver the intended benefits only if it comes as a supplement to the public services such as primary health and education. This means that direct transfers should not be at the expense of public services for primary health and education.
  • Moreover, universal health and life insurance are equally important, and so is the case with crop insurance. The scope of Ayushman Bharat needs to be expanded to include outdoor patient treatments. The PM Fasal Bima Yojana can be made more comprehensive by providing free and wider insurance coverage.


There is a strong case for spending ₹3.6 lakh crore on the poor. But let’s do so carefully.