A Moneycontrol analysis has found that if the Maharashtra model, as proposed by the Maha Vikas Aghadi, is implemented, states will spend an average of 0.7 percent of GDP on unemployment benefits.
MVA, an alliance between Congress, Shiv Sena (UBT), and NCP (SP), has proposed a Rs 4,000 monthly unemployment benefit in the state as one of its five election promises.
The analysis further shows that the unemployment benefit will likely push nearly all states beyond the 3 percent limit prescribed by the finance commission for the fiscal deficit if they cannot fund the transfer or make cuts in other departments. Three states, namely, Bihar, Uttar Pradesh, and Rajasthan, will likely cross the 5 percent fiscal deficit ratio.
Bihar will spend 2.2 percent of its GDP on unemployment benefits if it promises Rs 48,000 per person or 70 percent of its per capita income. The state is headed for elections next year, and parties may be tempted to make the same promise.
In terms of amount, 18 states will spend over Rs 1.96 lakh crore on unemployment benefits.
Maharashtra, which may be the first state to implement this generous payment, would see a 0.5 percentage point jump in its spending.
The state had an unemployment rate of 3.3 percent across both rural and urban areas in 2023-24 (July-June), according to the Periodic Labour Force Survey report released earlier this year.
Kerala had an unemployment rate of 7.2 percent, while Gujarat’s unemployment was 1.1 percent.
The PLFS does not count ghost employees engaged in agriculture as unemployed.
Uttar Pradesh and Bihar had an unemployment rate of 3 percent.
Making unemployment benefits viable
States would be better off in a scenario if payments were linked to per capita income. As per an NSE study on state budgets, Maharashtra’s per capita income was Rs 3.19 lakh in FY24, and a Rs 48,000 per annum payment is equivalent to 15 percent of the per capita income.
A similar calculation would entail Bihar spending a mere Rs 10,000 per person, while Karnataka, Telangana, Gujarat, Haryana, and Tamil Nadu would spend upwards of Rs 50,000 per person per annum.
The median spending per state would be curbed to 0.5 percent of the GDP.
Kerala, in this case, would spend the maximum of 1.1 percent of the GDP on unemployment benefits as per FY24 numbers.
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