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View PointOpinion: Towards transparent income distribution

Opinion: Towards transparent income distribution

Published: 21st Oct 2021 12:36 am

By Nayakara Veeresha

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The coronavirus pandemic has triggered an economic crisis pushing people into the vicious cycle of poverty and indebtedness. At this critical juncture, economists and political analysts believe that the Congress’ electoral promise of Nyuntam Aay Yojana (NYAY = Minimum Income Plan) in 2019 has relevance to the common man’s economic problems. NYAY aims to ensure minimum income support of Rs 72,000 per year (Rs 6,000 every month) to poor households. Rahul Gandhi has said that the scheme was “extremely powerful, dynamic, well-thought-through idea” emphasisimg that the “final assault on poverty has begun”. The media understood this as ‘Garibi Hatao 2.0’.

The Congress government in Chhattisgarh launched this scheme in 2019. The economic cost of NYAY is Rs 3,54,000 crore working out to less than 2% of the GDP. Against this backdrop, it is interesting to see the fiscal feasibility of NYAY and its impact on the long term growth and performance of the Indian economy. The discourse has been divided, and two sets of arguments come to the fore — the question of economic feasibility and as a public policy measure to mitigate poverty by increasing the purchasing capacity of the poor households.

Economic Populism
The political theory of populism of Daron Acemoglu et al (2011) provides an interesting proposition. According to this, the populist bias of policy is greater when the value of remaining in office is higher for the politician. Historically, Franklin Roosevelt (FDR) assumed office during the worst phase of the economic downturn of US economic history. In these circumstances, to what extent NYAY has to be seen as what Dani Rodrick of Harvard University calls “economic populism”.

NYAY is considered as an act of public policy intervention to uplift the poor by way of increasing household income. The FDRs Social Security Act of 1935 was aimed at providing financial support to the elderly and the unemployed along with other economic reforms which he described as “were needed not only to serve people better but also for the “survival of democracy” (Roosevelt 1936). An immediate question arises, from where and how the Congress is going to mobilise the necessary funds to implement the NYAY scheme? Rising inflation, slow growth rate in the wake of global economic fragility triggered by the US-China trade conflict and the increasing government’s external debt give no clarity on the source of income for the NYAY.

The onus is on all to witness the economic options available to implement the scheme: introducing tax on wealth popularly known as FDRs “soak the rich” tax; widening the existing tax base which is lowest and stands at 13th place among 18 G-20 democracies; reducing the subsidies given to electricity, fertilizers and most importantly farm loan waivers; and cutting down budgetary allocations to social sectors.

Fiscal Pressure
These measures are difficult, especially in the Indian context, and demand strong political will beyond populist ideas. This require as FDRs called his new economic deal — “bold, persistent experimentation (1932)”. The above economic policy instruments are well within the purview of the Fiscal Responsibility and Budgetary Management (FRBM) Act, 2003. Without these, implementing NYAY will automatically invite fiscal pressure as it may pave the way for an increase in government’s debt through external borrowings.

Apart from the economic feasibility aspects, there are certain inherent challenges in the proposed NYAY. Foremost, is the identification of genuine poor households with the incoherence of poverty level data, including methodology of measuring the same. The plan needs robust design, including the details of its operation in a phase-wise manner.

The NYAY falls within the rights-based domain from the welfare perspective which falls under the purview of Directive Principles of State Policy (DPSP) of the Constitution. As argued by German philosopher Hegel, state as an ‘ethical order’, the idea of NYAY is worth considering, especially in the context of ever-widening socioeconomic inequality. The scheme certainly has elements of redistributive and welfare politics. However, the election promises must take into cognizance the state of economic equilibrium before its inception. Whichever party or regime assumes power, it should work on the fiscal sensitivities of these kinds of populist schemes; otherwise, these will pose a financial burden to the taxpaying citizens at large in the later stages of implementation.

Clear Cut Vision
The public choice theories argue that whenever the probability of getting re-elected is less then there will be policy bias towards electoral populism. A clear cut vision between the taxpayer and delivery of public services is vital for fiscal legitimacy and democracy.

The NYAY has certain similarities with the idea of Universal Basic Income (UBI). Conceptually, the Economic Survey 2016-17, states that the “UBI provides the necessary material foundation for a life (p.173)”. The idea of basic income lacks the epistemological and ontological substance to gain universality. In terms of philosophy, human life is much broader and wider than material conditions; though nobody can deny the necessity of a source of livelihood. Biological, socio-cultural and spiritual forces also determine the economic structure of a society. In terms of practical implementation of NYAY, poverty measurement and identifying mechanisms for the poor people suffer from a lack of consensus on criteria and data inaccuracy.

We as a nation are yet to build a robust institutional system to cater to the needs of poor people. The question is how to bring 224 million poor people (World Bank, 2013) in India within the ambit of NYAY for fair and transparent income distribution to meet the basic needs. The global experiences of conditional/unconditional cash transfer schemes infer that unless structural constraints (social, political and cultural) are addressed, economic measures may not yield the desired results especially in the countries where socio-economic inequalities are inherent.

(The author is PhD Fellow, Centre for Political Institutions, Governance and Development of Institute for Social and Economic Change (ISEC), Bengaluru. Views are personal)

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