A report commissioned by the Economic Advisory Council (EAC) to the Prime Minister on Wednesday suggested that the government launch a universal basic income (UBI) scheme to reduce the income gap and introduce a guaranteed employment program for the urban unemployed.
Noting that the sharply skewed nature of income distribution in the country is only getting worse, the council has recommended measures to increase the minimum income and a higher share of government spending in the social sector to prevent the weaker sections of the population from crashing and “stop leaning towards poverty”.
The report titled “State of Inequality in India” prepared by Gurgaon-based Institute for Competitiveness was released by EAC Chairman Vivek Debray.
Citing the results of three rounds of the Periodic Labor Force Survey (PLFS), the council noted that in the three years from 2019-20, the total earned income of the top 1% of the population was 6-7%, where the top 10% held a third. Specifically, the share of the top 1% of the population in the total income of the country has increased in the three years from 2019-20 – from 6.14% to 6.82%.
Of course, the epidemic then led to a decline in national income in 2020-21. Given the increasing pace of formalization of the economy over the past two years, many analysts believe that the income gap could widen further from 2019-20.
According to the report, although the share of income in the top 10% has declined marginally from 35.18% in 2017-18 to 32.52% in 2019-20, this has not resulted in an increase in the wages of the lower population. “… the top 1% grew by about 15% between 2017-18 and 2019-20, with the bottom 10% registering a fall near 1% (in their earnings),” it added.
The report, albeit frightening, paints a relatively good picture of the country’s income pyramid compared to the World Inequality Report (WIR) 2022, published in December last year. According to the WIR, India stands as a “poor and extremely unequal country, a rich elite”, where, in 2021, the top 10% of the population was 57% of gross national income and the top 1% was 22%. . The bottom half of the population accounted for only 13% of national income in 2021, it said.
Interestingly, the EAC’s call for a UBI scheme has revived a long-running unresolved debate on how to best address the growing income inequality in India. The idea took on new life after former chief economic adviser Arvind Subramanian approved it in the FY17 Economic Survey instead of shifting the subsidy. The survey found a semi-universal rate of 75% (of all beneficiaries). Subramanian calculated UBI’s economic costs to be 4.9% of GDP.
However, later that year, Finance Minister Arun Jaitley said that while he supported the idea, it may not be politically feasible in India. “We will land in a situation where people will stand in parliament and demand that the current subsidy be continued and on top of that (UBI) …,” Jaitley said.
Subsequently, in October 2017 the International Monetary Fund supported the idea of introducing a financially neutral universal basic income excluding both food and energy subsidies that could cost 3% of gross domestic product (GDP) or Rs 5.6 trillion. In January 2019, then-Congress President Rahul Gandhi promised to launch a UBI if his party came to power.
India’s budgeted spending on social services has increased over the years – from 6.2% in FY15 to 26.6% in FY22 (according to budget estimates). However, spending on social services in education declined during this period (10.8% to 9.7%) but healthcare spending increased from 4.5% to 6.6% of budgeted expenditure.
The latest report calls for raising the minimum wage and ensuring a better distribution of income in the labor market.
“Given the differences in labor force participation rates in rural and urban areas, it is our understanding that schemes like MGNREGS are urban equivalents that should offer demand-based and guaranteed employment in order to rehabilitate surplus workers,” it said.
The report commissioned by the EAC highlighted the country’s serious unemployment but noted a marginal decline in the unemployment rate and a gradual improvement in the three-year labor force participation rate (LFPR) from 2019-20. Based on PLFS, the report states that LFPR for educated workforce (secondary and above) for 15 years or more – which was 48.8% in 2017-18 and 2018-19 – increased to 51.5% in 2019-20. . The country’s unemployment rate in 2019-20 was 4.8%, it noted.
However, according to the CMIE data, which is not strictly comparable to the PLFS results, the unemployment rate dropped to 6.56% in January 2022 from a peak of 11.84% in the second wave in May 2021. It has increased again 8.11% in February after the Omicron attack, before easing to 7.57% in March, but up to 7.83% in June.