ExplainSpeaking: Making sense of Rajasthan’s Minimum Guaranteed Income Bill

Some argue that this Bill (as indeed the other such initiatives) might end up being counter-productive for the state’s economy as it might undermine the process of normal economic growth because such laws rob people of their need to work and thus raise the labour costs. In other words, if people already have free electricity, free food, and easy income guarantees, why would they work at all? Some even argue that such initiatives make the relatively poorer Indians lazy. The supporters of such initiatives, on the other hand, argue that these are bare essentials and much needed at a time when there is widespread economic distress.

What are the key features of this Bill?

Enacting India’s first Urban Employment Guarantee Law

All of us have heard of the MGNREG Act. This is a law passed by Parliament in 2005 and it provides a legal entitlement to households in rural India for getting 100 days of work for which the government has to pay for. This was started in rural India as an acknowledgement that there is tremendous distress in rural India. Over the years, this has provided relief to rural India’s teeming millions every time they faced increased distress such as the reverse migration (from cities to villages) that took place during the Covid pandemic.

Thanks to its effectiveness and growing economic distress in the Indian economy, the current government has been forced to continue it even though it fundamentally disagrees with this approach.

In fact, over the past few years some states such as Rajasthan and Odisha had started off a similar “scheme” for urban employment guarantee, thanks to the growing economic distress in urban areas.

With the nod to this Bill, Rajasthan has become the first state in the country to enact an urban employment guarantee law. A law is different from a “scheme” or a “Yojana” as we will explain later in the piece. But simply put, a law confers a right on a citizen and he or she can go to a court of law to seek its implementation. A “scheme” provides no such legal guarantee and beneficiaries of any scheme remain at the mercy of the government in power.

Under this Bill, “Every adult person residing in the urban areas of the State shall have a right to guaranteed employment, that is a right to get guaranteed employment for doing permissible work of at least 125 days in a financial year and to receive minimum wages therefor weekly or in any case not later than a fortnight, in accordance with the provisions of this Act.”

A crucial thing here is that this Bill provides 125 days of employment guarantee as against just 100 days of employment guarantee in MGNREGA.

Enhancing rural employment guarantee to 125 days

This Bill adds 25 days of rural employment guarantee over and above the 100 days that is provided in MGNREGA. Nikhil Dey, a member of the Mazdoor Kisan Shakti Sangathan (MKSS) and one of the people who drafted the original MGNREGA of 2005, says that Rajasthan was providing an additional 25 days of employment guarantee until last year but that was under a “scheme”.

As such, as Dey points out, when many of the workers did not receive their wages on time there was no legal recourse open for them. Bringing the additional 25 days within the ambit of the law is a huge positive because now workers have a right (a legal entitlement) and can seek legal recourse in case of non-payment or delays.

Pension as a legal guarantee for the first time in India

What happens to those who cannot go out to seek work and earn under the entitlements of rural and urban employment laws? This group can consist of people who fall under one or more of the following categories: disabled or widows or old.
For such individuals, this Bill guarantees a pension of Rs 1,000 a month.

Making pensions inflation-proof

Another key aspect of this pension guarantee is that the government will increase the amount by 15% every year. This is being done not just to future-proof it from inflation but also to progressively make up for the fairly low initial starting amount.

Minimum Guaranteed Income, not Minimum Income Guarantee

It is important to note the exact wording of the title of this Bill since it is crucial to understanding the essence of what the government is trying to do. It is “minimum guaranteed income,” not “minimum income guarantee”.

Many might confuse this Bill to imply that the government is trying to provide some version of Universal Basic Income. Here is a 2019 interview with Philippe van Parijs, professor at the Faculty of Economic, Social and Political Sciences of the University of Louvain and the author of Basic Income, to understand more about the concept and its origins.

Simply put, under a Universal Basic Income or a UBI scheme, the government takes away all existing subsidies and replaces them with a single cash payout to all citizens regardless of what they do and how much they earn. This cash payment is the UBI. The way UBI works is that only those who otherwise earn no money are able to enjoy the full UBI payout. Others, depending on what they already earn, end up paying it back to the government through taxation.

What Rajasthan has done is not UBI. Instead, this Bill provides a “minimum guaranteed income” either by way of cash (Rs 1,000 per month) or through employment (Rs 255 per day for a maximum of 125 days) to all the adults living in the state. This forms the “minimum guaranteed income” but it is not the “minimum income guarantee” (in the sense of a UBI).

A “minimum income guarantee” or UBI would refer to a sum of money (substantially more than what the Rajasthan government is promising) that the government believes is good enough for any citizen to live off.

The “minimum guaranteed income”, on the other hand, is just the minimum money the state is guaranteeing to all without claiming that this is good enough for living.

Like all analogies the following one is also imperfect but think of “minimum guaranteed income” (that Rajasthan is providing) as the minimum pocket money your parents might give you when you step out of your home and this amount is aimed to ensure that you don’t get into some trouble and are able to get back home safe and sound. The “minimum income guarantee”, on the other hand, is more like the amount of salary you’d expect from your employer to live a decent life all by yourself.

Yet another way to understand this is that Rajasthan’s “minimum guaranteed income” is a small contribution towards what should be an adult’s “minimum income” (that is, if ever we were to calculate such a number).

Can the Rajasthan govt afford to spend on it?

Typically, such expenditure implies greater outgo from the state coffers. This can happen only when the economy undergoes fast growth and creates enough revenues so that such expenditure does not lead to a ballooning of the budget deficit.

The first thing to note is that Rajasthan’s economy has grown by almost 75% in the past 5 years since the current Congress government took charge in late 2018-19. The nominal gross state domestic product (that is GSDP at current prices) was around Rs 9 lakh crore in 2018-19 and it is expected to be Rs 15.6 lakh crore by the end of the current financial year (2023-24).

This jump in the state’s GDP has happened because its growth rate has been faster than most others. In his speech for the Budget of 2023-24, Chief Minister Ashok Gehlot stated that “the average growth rate of the State’s GSDP at current prices in the last 3 years has been 9.68%, which is more than the average growth rate of the India’s GDP of 8.10%.”

Nominal per capita incomes, too, have increased by 50% over the past 5 years from around Rs 1 lakh to Rs 1.56 lakh, according to a senior state official who did not wish to be identified.

In terms of real growth rate — that is growth rate after taking away the effect of inflation — Rajasthan has done even better. Gehlot had also informed that in terms of the GSDP growth rate at constant prices, Rajasthan was at the 31st position in the country with a growth rate of 2.37% when he took charge in 2018-19, and as of 2021-22, it stood second in the country with a growth rate of 11.04%.

The official states that faster overall growth has meant that despite such expenditures (which were earlier being done as schemes), Rajasthan will be able to contain its total debt-to-GSDP ratio to 36.78% by the end of FY24. While this is much higher than the 20% level mandated by the Finance Commission, the bulk of the increase had happened during the previous BJP regime according to the official.

“The debt ratio went up by almost 11 percentage points — from 23.58% to 34.16% between 2013-14 and 2018-19. However, despite the hit to revenues during Covid, Rajasthan’s debt ratio will be just 36.78% by the end of FY24 — less than three percentage points higher than when the current government took charge,” said the official. It is important to note though that an RBI study from June 2022 pegged Rajasthan’s debt to GSDP ratio at 39.8% for FY23 — placing it among the top five most stressed states in the country.

The next worry about such expenditures is that they tend to hold back the government’s push towards capital expenditure. On this issue, too, the official stated that Rajasthan has continued to increase its capital expenditure. “It was Rs 80,000 crore between 2013-14 and 2018-19 while in the past five years it is Rs 1,20,000 crore,” said the official.

Is it a Revdi and has it been done with the intention to win elections?

These two questions should ideally be separated.

That’s because everything that any government does is aimed at winning elections — whether it is about increasing subsidies (to farmers or big firms) or choosing to stay silent on some burning issue.

The more substantive question is whether this is a Revdi (freebie) or not. This, in turn, depends on at least two other questions:

What is the benefit that the government is providing?

For instance, a government can announce that it will give free movie tickets every month to those who are young or it can say it will subsidise the tuition fee of those belonging to economically and socially weaker sections. The former may not necessarily raise the productive capacity of the students but the latter surely will. So the character of what is being promised matters.

What is the legal framework within which it is providing it?

For instance, until last week, the same 25 days of additional rural employment was provided under the formal of a scheme. Today, it has been enshrined as a legal right. The difference between the two is that the same benefits flowing to citizens under a scheme can be arbitrarily taken away any day while under the “rights” framework, people can seek recourse from the judiciary. In India’s Constitution, the whole point of clearly enunciating certain Fundamental Rights is to place a check on the powers of the government.

So when a politician promises a laptop or an additional LPG cylinder at the time of a specific festival or a farm loan waiver without any legal or statutory framework it means that benefit is a largesse that can be taken away any time.

Will Rajasthan’s new Bill hold back the growth of its economy by making its poorest residents lazy?

Instead of predicting an answer, it is more instructive to introspect at two different levels.

One, from the point of view of economics.

The first starting point is to understand the definition of abject poverty. According to the World Bank, the abject poverty line is $2.15. This is in terms of international dollars — based on purchasing power parity. One such dollar is worth Rs 21.3. In other words, someone living on Rs 46 a day in India is considered to be living in abject poverty.
According to the World Bank, as of 2019 (that is pre-Covid), as many as 137 million Indians were living at Rs 46 per day and as many as 612 million were living at Rs 78 per day ($3.65 poverty line).

These numbers provide a benchmark to assess the scale of economic benefits that this new Bill provides the poor in Rajasthan.

Rs 1,000 per month pension to those who are disabled or elderly or widows translates to Rs 33.3 per day.
Similarly able-bodied people who are being provided the opportunity to do manual labour for a maximum of 125 days in a year at around Rs 250 a day will get a maximum of around Rs 32,000 a year or Rs 87.3 a day.

Will either of these payments per se make such beneficiaries so well off that they become lazy looks unlikely but is open to academic research.

So is the question whether other similar benefits — such as subsidised food or free healthcare — can add up to derail the Indian economy.

But apart from the economic perspective, there is a Constitutional way to look at this issue as well. Two quotes — both related to the Preamble and the broader philosophy of India’s Constitution — can help introspection on this issue.

The first is by noted constitutional expert D D Basu who said the following in relation to “economic justice” and the role that the government is supposed to play towards achieving it.

“The banishment of poverty, not by the expropriation of those who have, but by the multiplication of the national wealth and resources and an equitable distribution thereof amongst all who contribute towards its production, is the aim of the State envisaged by the Directive Principles…The ideal of economic justice is to make equality of status meaningful and life worth living at its best removing inequality of opportunity and of status — social, economic and political.”

The second quote is by B R Ambedkar from his 1949 speech to the Constituent Assembly where he explained what would happen if the Preamble is followed only in parts.

“Without equality, liberty would produce the supremacy of the few over the many. Equality without liberty would kill individual initiative. Without fraternity, liberty and equality would not become a natural course of thing.”

Share you views and queries at udit.misra@expressindia.com

Until next time,

Udit