Rajasthan's Minimum Guaranteed Income Bill: Showing The Way Or A Bad Precedent?

Rajasthan has passed a legislation offering guaranteed wages or pension to beneficiaries in rural and urban areas, becoming the first state to make social security a legal right.

There are many firsts in this historic bill with Rajasthan becoming the first state to enact the law, making it a legal guarantee, said Nikhil Dey, founder member of the Mazdoor Kisan Shakti Sangathan & National Campaign For Peoples Right to Information. While some other states have similar schemes, there is a vast difference between a scheme and law that makes it a right, he said.

Pensions under the central government have remained very low and almost stagnant since 2007, Dey said. Not only does the Rajasthan law provide a higher old-age pension, it recognises unpaid work by women and brings them under the scheme, making it gender friendly, said Dey.

According to Paras Jasrai, analyst at India Ratings and Research Pvt., said that the law would help tackle high youth unemployment in the state, drive consumer demand and help boost the local economy.

Amit Basole, head of the Centre for Sustainable Employment at Azim Premji University, calls it a "welcome extension" of the employment schemes.

Pensions too are a right if one spends an entire lifetime working and that stands as true for those in the informal sector, Basole said. Since it covers them, too, the law shows what can be done and demonstrates the possibility of a nation-wide legislation, he said.

For the minimum guaranteed scheme, Rajasthan allocated an additional expenditure of Rs 2,500 crore for FY24 in the state budget. It was enacted ahead of the Rajasthan state elections when state finances are already fragile.

Devendra Pant, chief economist at India Ratings, said since the scheme is part of the state budget, the fiscal impact is largely taken into account. With the scheme targeting the poor, the marginal propensity to consume is likely to be close to 1, suggesting that it will provide an equal boost to the state economy.

The Reserve Bank of India has identified Rajasthan as a highly stressed state, exceeding both debt and fiscal deficit targets set by the Fifteenth Finance Commission. Rajasthan is also projected to exceed the debt-GSDP ratio of 35% by 2026-27 and will need significant corrective steps to stabilise debt levels, the central bank said.

With Rajasthan continuing to run a persistent revenue deficit, capex spending has been curtailed, Jasrai said. Capex would have helped boost infrastructure capacity, leading to long-term sustainable growth, he said.

The situation is likely to remain the same next year when Rajasthan goes to polls, he said. If the state is unable to grow commensurate to its spending, over the medium term, it could either fall into a debt trap or see cuts to other spending that are softer targets, Pant said.

India Ratings expects Rajasthan's fiscal deficit at 4.2% of the gross state domestic product in FY24, higher than the budgeted 4%. This is mainly due to a higher-than-budgeted deficit in the state’s revenue account. The higher revenue deficit may narrow the fiscal space to meets its targets for expenditure on capital and productive assets or any unforeseen spending, it said.

Dey, however, said expenditure for the schemes could possibly be diverted from other avenues, along with improving efficiency. The employment schemes can be made more productive and used to build capex, he said.

Already, the MGNREGA helps inject money and drive economic activity, more so in vulnerable rural and tribal areas, he said. "Without extending social security to the very poor, millions remain at the risk of dying. Can we really afford that?"