May 9, 2024
📰 FEATURE STORY
Is the PMGKAY a viable alternative to Universal Basic Income (UBI)?
There’s always spirited debate and discussion on how best to ensure a robust social welfare framework. Social welfare is something governments, policymakers, and economists can agree on that we need. It’s what constitutes the welfare that produces different approaches. Some say the best way is to give people a stipulated monthly amount, i.e., a Universal Basic Income (UBI).
But India has something else – the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). It’s the government’s flagship food subsidy scheme. Under it, people get a fixed quantity of food grains like wheat and rice at nominal prices. Since India doesn’t have a UBI, does the PMGKAY represent a viable alternative?
Context
In some ways, India is the global barometer of social protection. People often look to India as a harbinger of what’s to come in the rest of the world. India is wealthier, more entrepreneurial, skilled, educated, and urban than ever. That doesn’t mean we’ve solved poverty. Far from it. Some estimates say India has the highest number of poor people and malnourished children. It’s why social welfare rightly gets a lot of attention.
The PMGKAY was launched in 2020 to provide 5kg of food grains per person each month. Under the National Food Security Act (NFSA), there are about 80 crore beneficiaries. It came just in time as the country began a nationwide lockdown due to the Covid-19 pandemic. People, especially migrant labourers, daily wagers, and in the informal sector, were out of work.
While initially only available for three months, it was extended for several months going into 2021. There was some pushback in late 2021 when the government announced it had no plans to extend the scheme since the economy was opening up, and the open market sale scheme (OMSS) was performing well.
The Right to Food Campaign wrote to Food Minister Piyush Goyal, asking him to extend the scheme. The government eventually did, first till March 2022 and then till September 2022. By then, the scheme had already cost over ₹3 lakh crore. Last year, Prime Minister Narendra Modi announced the scheme will be extended for another five years.
The concept of a UBI has gained more attention and recognition globally amid concerns about technological unemployment in advanced economies. The case for a UBI in the developing world has also gained traction since direct cash transfers could cut through red tape and help lower inequality. For India, the argument is that a no-strings-attached payment system is the best alternative to several underperforming and leaky antipoverty initiatives.
India’s social sector architecture isn’t the most robust. Government subsidies reached an all-time high of 20% of total expenditure in 2020-21. Food subsidies were the largest share in the aftermath of the pandemic and lockdowns.
Would the UBI be a better and possibly cheaper approach to solving India’s social security and welfare shortcomings?
VIEW: The PMGKAY is the right approach
The PMGKAY represents a more practical approach to a broad social welfare apparatus than UBI. While UBI has been discussed abroad as a possible solution to reduce inequality, India’s approach has been unique. The PMGKAY is paving the way to provide basic food security to almost two-thirds of citizens. It’s the longest-running and largest free food distribution scheme in the world.
Just giving a fixed amount of money to people, no strings attached, might sound nice on paper, but it has its risks. On the macroeconomic level, such handouts could result in unexpected inflation due to the large influx of cash into the economy. If there’s going to be a rise in prices, then that would negate the cash transfers. Under the UPA-2 government, the MNREGA’s untargeted cash infusion led to double-digit inflation.
By distributing food instead of cash, the government knows the assistance provided will be used exactly for the intended purpose. It makes sense for India to have the PMPGKAY since people with low and minimal incomes spend about 30-40% on food. Analysis by the Food Policy Research Institute stated that every dollar invested in food security in low-income countries can yield up to $16 in economic returns. Shifting from cash-based assistance to direct provision of goods is also a better use of government resources.
COUNTERVIEW: The PMGKAY isn’t a viable alternative
When the National Food Security Act (NFSA) was passed in 2013, there was a provision to revise the Central Issue Price (CIP), i.e., the price at which the rations are sold, every three years. That hasn’t happened even though there has been a sharp increase in the costs of handling grains. The government is in a bind since if they do revise the CIP upwards, it wouldn’t be politically prudent.
On the ground, people, especially from economically weaker sections, who work daily wage jobs, and others, need direct financial assistance. Apart from the fact that the PMGKAY doesn’t have universal coverage, it doesn’t alleviate people’s financial woes. A pilot UBI project in Hyderabad a couple of years ago showed promising results. It was particularly helpful in healthcare expenditure. Gauging the correct amount is key. It shouldn’t be so low that it doesn’t make a difference and not high enough to discourage labour.
To eliminate the cycle of generational poverty, UBI is the better approach, compared to the PMGKAY. The latter has been shown to have only limited effect. In fact, it shines a spotlight on the inadequacies of the Public Distribution System (PDS). Issues range from eligible people being excluded to Aadhaar linkage troubles, among others. A UBI would all be done electronically, ensuring better coverage.
Reference Links:
- The Evolution of India’s Welfare System, 2008 to 2023 – The Wire
- Pradhan Mantri Garib Kalyan Yojana (PMGKAY): All you need to know about free ration scheme – India Today
- Anna Yojana Is Modi’s Pragmatic Alternative To Universal Basic Income – Swarajya
- A half measure: PMGKAY will bolster poor Families’ food security, but does little for nutritional security – Financial Express
- India’s Universal Basic Income: Bedeviled by the details – Carnegie Endowment
- Can Universal Basic Income tackle India’s poverty – Down To Earth
What is your opinion on this?
(Only subscribers can participate in polls)
a) The PMGKAY is a viable alternative to Universal Basic Income (UBI).
b) The PMGKAY isn’t a viable alternative to Universal Basic Income (UBI).
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