An Inclusive Growth Dividend: Reframing the Role of Income Transfers in India’s Anti-Poverty Strategy

Both theory and evidence suggest that unconditional universal income transfers can not only reduce poverty, but also improve productivity and achieve development goals more broadly. Given recent policy initiatives in India to support farmers with income transfers (at an estimated cost of around 0.4 percent of GDP), we propose an expansion of this approach to cover all citizens, as one component of India’s portfolio of social protection programs. Specifically, we propose that India implements an inclusive growth dividend (IGD), pegged at 1 percent of GDP per capita, which reaches all citizens and grows equally for all with the economy’s growth. This will be both fiscally feasible and practically implementable and would be a powerful practical and symbolic commitment to universally shared prosperity. We review global evidence on the impact of income transfers and argue that an IGD would be a highly cost-effective way of directly reducing poverty, with limited administrative costs of targeting, reduced risk of exclusion errors, lower leakage of benefits, and lower disincentives for work compared to most targeted programs. It would also improve financial inclusion and formal savings, relax borrowing constraints for productive investments, and improve female empowerment. Further, successfully delivering an IGD would augment the capacity and credibility of the Indian State. Over time, it could create an attainable benchmark against which to evaluate (and improve) the quality of public expenditure. Finally, we note that an IGD could be a powerful tool for the Government of India to promote the objectives of equity and efficiency given the vast differences in income levels and state capacity among Indian states.