Garibi Hatao 2.0

Both income support scheme and subsidies cannot co-exist in an economy as complex as India’s since it would create a huge pressure on fiscal situation

AuthorPublished: 29th Mar 2019  12:15 amUpdated: 28th Mar 2019  8:47 pm

Congress president Rahul Gandhi’s poll-eve promise of minimum income guarantee scheme raises more questions than it seeks to answer. The party has promised that, if voted to power, it would provide Rs 72,000 per year to the poorest 20% families in the country. Though the opposition party has claimed that the scheme, ‘Nyuntam Aay Yojana’, (NYAY), would be a “surgical strike on poverty”, two key questions need to be answered immediately. First, whether the scheme, touted as ground-breaking and well thought-through idea, replaces the existing subsidies ranging from food to fertilizers or would be offered as a cash dole over and above them. Second and more important question is about the identification of the eligible households in the absence of the income data. Given the complexities of Indian economy, it is extremely difficult to collect income data of all individuals on an annual basis. This is primarily because about 90% of the population is engaged in informal work, which does not have a fixed pay structure. The incomes of the self-employed, farmers, agricultural labourers, migrants and urban informal manual workers differ significantly from year to year. There is no denying the fact that the direct benefit transfer would be an efficient way to address poverty, given the pilferage, rampant corruption and inefficiency in the delivery mechanism of welfare schemes. The Aadhaar architecture, penetration of banking services, mobile phones and the online facilities must make cash dole-outs easy and transparent. However, an ambitious scheme of such a magnitude would be unviable unless the ongoing subsidy policies are reconfigured and rebooted.

The ‘NYAY’ scheme would entail an annual expenditure of Rs 3.60 lakh crore, equalling 13% of the total government expenditure and more than 20% of the Centre’s net tax collections. A fine balance has to be made between the available budgetary space and the need to eliminate distortionary subsidies before going ahead with such cash dole-out policies. Governments cannot afford to treat this scheme as an add-on to the existing expenditure but must reconfigure the assorted current expenditure to make it fiscally sustainable. Both income support scheme and subsidies cannot co-exist in an economy as complex as India’s since it would create a huge pressure on government’s fiscal situation. The minimum income guarantee as a means to uplift the poor is not a new idea. Former Chief Economic Adviser Arvind Subramanian presented a Universal Basic Income (UBI) scheme as a radical new vision to tackle poverty. However, a key implementation challenge is that the UBI runs the risk of becoming an add-on to, rather than a replacement of, the current anti-poverty programmes. A scheme like NYAY can be useful only if all subsidies and welfare programmes are dovetailed into one.