Guaranteed employment is a good way to ensure minimum income in India

With elections upon us, Indian politicians are in a race to attract voters with handouts and sops. Significant among these are promises of income transfer programmes. It started with the PM Kisan Yojana, an initiative by the incumbent National Democratic Alliance government to provide small and marginal farmers Rs 6000 per year as minimum income support. More recently, the Congress has announced the Nyuntam Aay Yojana (NYAY), which promises to provide Rs 6,000 a month or Rs 72,000 annually to the 20% of the poorest households in the country.

Apprehensions have been raised about the fiscal implications of the scheme. There are also concerns about whether the introduction of income transfers will eliminate or phase out existing welfare schemes. The more serious challenge, however, lies in the identification of the beneficiary households. In an economy like India’s, in which a disproportionately large share of people are self employed and hardly any robust household income data exists, implementing a scheme contingent on income is nothing short of a logistical nightmare.

While poverty levels have been falling over the years, in 2011-12 (the year when India’s last official poverty estimates were released) 270 million people were below the poverty line defined the Tendulkar committee. In a country which is still home to such a large number of poor, the idea of income transfers is certainly an appealing one. However, it is also an admission of the fact that the impressive economic growth witnessed by India has not been inclusive. The inability of the State to ensure access to key basic services such as education and health has impeded the poor from participating in the growth process. To absolve itself of these responsibilities, the State is doling out cash to the poor.

Income transfers can never address the root cause of poverty. Poverty in India is a consequence of myriad complex factors. One of the primary reasons is that people do not have work that provides incomes which are necessary to meet their basic needs. Data from the Labour Bureau’s Employment Unemployment Survey (2015-16) shows that about 67% of surveyed households had an average monthly earning up to Rs 10,000. In rural and urban areas, the corresponding figures were 77% and 45% respectively. An overwhelmingly large share of households (not simply 20%) are employed in low paying jobs and are earning less than Rs 12,000 a month — the minimum income proposed by the NYAY. Importantly, these jobs are mostly informal in nature with little job security. This makes households vulnerable to slipping back into poverty if there is a large negative shock.

To address the deep-rooted challenge of poverty and inequality, what India needs more than income transfers is to create more well-paying productive jobs. Minimum incomes need to come through better paying jobs. It is the world of work that holds the key for solid, progressive and long-lasting elimination of poverty. Therefore, the top priority for the next government must be to create more quality jobs and make these jobs more inclusive to women, young people and populations in remote and lagging regions. Policy prescriptions must treat productive job creation as an explicit objective of economic and social policies, and not simply an assumed derivative of the growth process.

A policy choice worth re-examining is that of guaranteeing employment. In an economy like India’s, in which the poor face high underemployment and there is considerable scope to do useful work, employment guarantees are an attractive anti-poverty intervention. It has often been argued that employment guarantee programmes such as the MGNREGA have been less cost-effective in reducing poverty than we would have expected. However, there is a case for studying how these can be strengthened by ensuring livelihoods to those who are in the greatest need and focusing on creation of durable assets that are of value to the poor. Building productive assets through these programmes is a promising avenue for breaking the cycle of intergenerational poverty.

Importantly, the guarantee of employment needs to be at a living wage and not just a minimum wage, which is nothing more than a subsistence wage. A living wage reflects what earners in a family need to bring home to provide a decent standard of living and meet their basic family needs, including education, food and healthcare. Living wages will not only ensure a minimum basic income to the poor, but also enhance their bargaining power by setting a wage floor. While electoral compulsions make income transfers a populist measure to woo voters, policy makers need to carefully examine the pros and cons of both income and employment guarantee schemes to secure an India free from poverty.

Radhicka Kapoor is a fellow at ICRIER, and has worked with the Planning Commission and International Labour Organization

The views expressed are personal