India's Poverty Paradox India's government has proposed a plan to pay some of the country's poorest farmers a guaranteed income. What would this mean for the country's economy?
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India's Poverty Paradox

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India's Poverty Paradox

India's Poverty Paradox

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STACEY VANEK SMITH, HOST:

Last week, some major economic news came down in India. The finance minister was unveiling the 2019 budget to the Indian Parliament, and he announced something pretty radical.

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PIYUSH GOYAL: There is a need for providing structured income support to the poor landholder farmer families in the country.

UNIDENTIFIED PEOPLE: (Crosstalk).

GOYAL: This income support will be transferred directly into the bank accounts of beneficiary farmers.

CARDIFF GARCIA, HOST:

The plan - to give India's poorest farmers a guaranteed income of 6,000 rupees a year - just put it straight into their bank accounts.

VANEK SMITH: The move was most definitely political. The prime minister of India, Narendra Modi, and his party have some big elections coming up. The party's been struggling a bit, and they really need rural votes.

GARCIA: Hey, giving people money - pretty good way to get votes.

VANEK SMITH: It's true. I mean, it's a little bit cynical, if you look at it. Nonetheless, this payout would significantly increase the income of more than 100 million of India's very poorest families. This is THE INDICATOR from Planet Money. I'm Stacey Vanek Smith.

GARCIA: And I'm Cardiff Garcia. Today on the show, India is a powerful and fast-growing economy, but it also has a terrible problem with poverty and economic inequality. So could payouts like these potentially help solve that problem?

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GARCIA: OK, so Prime Minister Narendra Modi's payout plan for farmers is only a proposal at this stage. A different political party could end up grabbing power instead, and absolutely nothing is a done deal yet.

Even so, a bunch of politicians in India right now are proposing plans kind of similar to this one, too - just giving low-income Indians money. It seems to be the way things are moving.

VANEK SMITH: And this idea is gaining popularity. When India's finance minister proposed the 6,000-rupee payout to Parliament, people went nuts. They all started banging their hands on their desks and shouting, hail the farmer, hail the farmer.

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UNIDENTIFIED PEOPLE: (Crosstalk).

GARCIA: Six-thousand rupees, by the way, is about $84, so it's not a ton of money - less than about a quarter a day.

VANEK SMITH: But in India, that money really means something. Tens of millions of Indians live on less than $2 a day.

GARCIA: And a quarter a day, when it's given to enough people, does add up. So the price tag for this farmer payout plan is about $10 1/2 billion. That's today's indicator - $10 1/2 billion.

VANEK SMITH: Do you think this would be - is, like, a good policy for India? I mean...

BHASKAR CHAKRAVORTI: So I'm a little torn.

VANEK SMITH: Bhaskar Chakravorti is an economist with The Fletcher School of Law and Diplomacy at Tufts University. He studied the Indian economy for years. He's originally from India. And he says, on the one hand, the people who would be getting this money really need this money.

CHAKRAVORTI: I do feel that the poorest segment of society in India has been getting the short end of the stick forever. And the prospects of that turning around are not getting any better. In fact, inequality is getting worse. The agricultural sector has been suffering from decreasing incomes and generally worsening conditions overall. So I do think putting a cushion there is a good thing.

GARCIA: The reason Bhaskar is torn is twofold. First, he says India's urban poor are also in dire need of help, and so are the rural poor who happen not to be farmers - the ones who don't own any land. And none of these populations would get any benefit, possibly because their votes aren't needed as badly as the rural farming vote. But he says it's a start and generally a good thing.

VANEK SMITH: Still, says Bhaskar, it's important to remember that there is a price.

CHAKRAVORTI: Now, simultaneously, India's fiscal position is not in the best shape. If they are to implement this, they have to be quite careful to not exacerbate the fiscal deficit. That is a key concern for India.

VANEK SMITH: In a way, this seems like a really obvious trade-off. People are really struggling. They don't have enough to eat. Who cares about India's fiscal position?

But Bhaskar points out that fiscal position is key for India's entire population. And things for them have been getting worse.

GARCIA: A government report was leaked to the press that showed India's unemployment rate in 2017 was the worst it's been in 45 years.

VANEK SMITH: And Bhaskar says that $10.5 billion Modi wants to spend helping low-income farmers will be money he doesn't spend growing other parts of the economy, an investment which could potentially create more jobs. And Bhaskar says job creation is really the key to helping the Indian economy and the Indian people in the long term.

CHAKRAVORTI: The unemployment situation is quite bad, and that needs to be turned around. And even if you provide guarantees at the very bottom of the pyramid, it's the middle of the pyramid that is going to suffer from, you know, chronic unemployment or underemployment.

VANEK SMITH: Is there, like, an action the government could take that would help that, or is...

CHAKRAVORTI: I think the action that the government would have to take is something far more systemic along the structural, growing, you know, really the manufacturing sector of India, which typically is the absorber of jobs with the large numbers of people that need to be employed. And that really hasn't budged over the last several years.

GARCIA: Meanwhile, says Bhaskar, all of the spending the government has proposed to help farmers would worsen India's deficit substantially. And since the announcement of the plan, the rupee has, in fact, dropped in value against the dollar.

VANEK SMITH: But Bhaskar says this is not an easy situation. For politicians or, really, anyone trying to set policy for India's economy, there is this kind of paradox.

CHAKRAVORTI: It's the fastest-growing large economy in the world, you know, growing possibly, you know, somewhere above 7 percent annually, which is, you know, a tremendous growth rate. But a lot - you know, 80 to 90 percent of all the workforce is in the informal sector, which is a very vulnerable state of being. And unemployment is at a record high.

GARCIA: In other words, India's economy is growing, but that growth has not been lifting everybody up the way economic growth is supposed to. Unemployment and inequality have actually gotten worse. And it's kind of a weird paradox.

VANEK SMITH: So if you're in charge of an economy like that, what do you do? Where do you invest the money?

GARCIA: Bhaskar still thinks economic growth is the key to solving inequality and unemployment in India and that the government needs to strategically invest its money in economic growth - growth that will create more jobs.

VANEK SMITH: But in the short term, there are a lot of people in desperate situations who need money.

GARCIA: Bhaskar says if he had to choose one side of the paradox, he would probably choose what the politicians appear to be choosing, which is helping India's very poorest now with cash.

VANEK SMITH: But the economist in him worries that this is just a Band-Aid and that this is using a lot of sorely needed resources on programs that won't effect the real change that's needed to grow and expand India's economy in a way that will make everyone's lives better in the long run.

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GARCIA: This episode of THE INDICATOR was produced by Darius Rafieyan and edited by Paddy Hirsch. Our intern is Willa Rubin. And THE INDICATOR is a production of NPR.

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