On January 28, four days before the budget, Congress president Rahul Gandhi had announced that his party would ensure a Minimum Income Guarantee (MIG) for every poor in the country if the Congress came to power after the Lok Sabha polls in April-May. Describing it a ‘historic’ decision, Rahul had said, ‘We cannot build a new India while millions suffer from the scourge of poverty.’ MIG was aimed at eliminating poverty at the bottom of pyramid – the poorest of the poor below the poverty line – and was understood as a basic income scheme or direct cash transfer to the poor. The BJP dismissed it as a gimmick.
Congress leaders had indicated that the scheme would be progressive in nature whereby 20 per cent of the poorest households would not receive flat payment but a specifically-tailored top-up payment that would ensure they earn Rs. 12,000 a month. So, if a household earned an income of Rs. 7,000 a month, it would receive top-up payment of Rs. 5,000. Days before the Union budget, there were reports of the Modi government coming up with a version of the direct cash transfer.
In the budget on February 1, the government announced PM Kisan Samman Nidhi Yojna under which poor and marginalized farmers were promised Rs. 6,000 per annum in three installments; already the first installment of Rs 2,000 has been disbursed. Rahul Gandhi called PM-Kisan an ‘insult’ to farmers. It now appears that the Congress has improved upon its earlier plan announced in January end. Taking the MIG scheme a step forward, Rahul Gandhi on March 25 announced that if the Congress came to power, it would implement a guaranteed income package for India’s 20 per cent poorest families.
Though details are still sketchy, what we do know is that about 5 crore families, based on 2011 census, would be given Rs 6,000 a month (Rs 72,000 per annum). The money would be transferred directly to the bank accounts of the beneficiary families. Called the Nyuntam Aay Yojana or NYAY, Rahul projected the initiative as the ‘final assault on poverty’ in India. It can be best described as an unconditional targeted basic income that will benefit 50 million households covering 250 million of India’s poorest citizens.
The proposed scheme would be run as a pilot project first and subsequently will have a phased rollout across the country. The cost of the scheme is estimated at Rs. 3.6 lakh crore or about 1.8 per cent of the GDP. In the last few years, reports of growing inequality and the widening divide between the rich and the poor has pushed many countries to debate and consider different concepts of income redistribution.
One of the concepts that has received lot of attention is the idea of Universal Basic Income, or UBI, which has lately been experimented on a limited scale in countries like Finland, Canada, US, Netherlands and Spain. The idea of UBI has also been discussed in India for some time. However, last week, it entered the mainstream when Rahul Gandhi announced the Minimum Income Plan (MIP) for the poor, which is different from UBI.
Under UBI, each citizen of a country gets a guaranteed monthly income, irrespective of his or her social, economic and educational status. But MIP is only a minimum income guarantee for the poor. Both are different. There is little doubt that Rahul Gandhi’s proposed economic announcement is an ambitious scheme. The Congress is hoping that it will shift the focus from BJP’s Pakistan-bashing and national security election narrative to economic issues.
In the short term, the party expects it to become an electoral game-changer by galvanizing the most deprived section of Indian voters to stand solidly behind the Congress. Irrespective of the electoral outcome, in the long term, it will push both national and regional parties to increasingly opt for direct cash support to the poor. Rahul’s MIP will also give a bigger push to the transformation of welfare architecture in India.
Not surprisingly, most of the prime television debates last week focused on NYAY: its electoral benefits for the Congress and its viability. The BJP has ridiculed NYAY and called it a ‘bluff’ on voters. Many economists are of the view that it will push up fiscal deficit, inflation, interest rates and will impact growth, rupee and foreign direct investment.
Apart from the scheme’s flaws and challenges to implement it, the key question they have raised concerns money: where will the funds come from? Another question raised by them is: how will the poorest 20 per cent be identified? Others say the scheme is not only implementable but workable.
Some of the senior Congress leaders like former finance minister P Chidambaram and Salman Soz have said that they will enumerate the scheme’s blueprint in the party’s manifesto this week. On the face of it, MIP appears a huge fiscal burden. But closer examination gives a better idea. Since it will be scaled up gradually to 5 crore families in phases, it will not cost the entire Rs 3.6 lakh crore in the first year itself.
If it starts with the poorest 1 crore families in the first year and moves upwards to cover the rest in the next four years, the fiscal burden will be spread over five years and will cost less than 0.5 per cent of the GDP each year, assuming that all the existing welfare schemes and subsidies stay and NYAY comes over and above them and the GDP grows at the rate of 7.5 per cent annually. Incidentally, the total cost of MIP does not exceed the unpaid and overdue debt of the 10 largest Indian corporate entities.
If funds can be found to implement the current government’s healthcare scheme Ayushman Bharat, Kisan Yojna and host of other initiatives, there shouldn’t be a major problem in funding NYAY. Tweaking some of the existing welfare schemes like MNREGA (cost: 60,000 crore) and food subsidy (cost: Rs 1.84 lakh crore) to align them with NYAY will help take care of Rs 2.4 lakh crore of the Rs 3.6 lakh crore cost.
That leaves a burden of only Rs 1.2 lakh crore on fiscal math and that’s certainly not a fiscal bomb, if one considers NYAY’s multiplier effect across the economy. According to economists, there are several options to finance a social transfer of this kind: for instance, a progressive tax on income and wealth on top 1 per cent of households will yield 1.1 per cent of GDP.
Yes, identifying the poorest families and making payments will be a tricky task. But if the government can identify and target 50 crore poor recipients of Ayushman Bharat, can there be a problem to identify 20 crore poorest Indians for NYAY?
A L I Chougule is an independent senior journalist.