2 min read.Updated: 27 Mar 2019, 10:50 PM ISTLivemint
The party has promised India’s most needy an assured regular income. But how will beneficiaries be identified? And won’t its financial burden endanger the economy?
No doubt, Congress President Rahul Gandhi has captured the country’s attention with his party’s promise of a monthly ₹6,000 handout to 50 million families at the bottom 20% of India’s income pyramid. As election gambits go, it’s a big one. Called NYAY, short for Nyuntam Aay Yojana, it aims to reinforce what the party claims as its final assault on poverty.This is a noble effort, but how it will pan out remains unclear in the dense fog of electoral war. For one, it isn’t clear if all beneficiaries would get this money, or if they will get the top-up amount that takes their earnings to ₹12,000 per month, the scheme’s threshold. Gandhi’s statement was unclear and conflicting comments by party functionaries have only added to the confusion. Both approaches suffer from flaws that would make the scheme tough to implement. To begin with, the top challenge would be how to identify India’s poorest one-fifth households. The country lacks reliable income data on its citizens, and this problem is especially acute lower down the scale. Even the Socio Economic and Caste Census uses proxies to assess people’s quality of life; and since the last survey was done back in 2011, its data is outdated. Like wealth, income is a dynamic measure, and large numbers of self-employed earners make it all the more difficult to get precise information. Maybe an opt-in scheme could ask for applicants to get their earnings certified, but such an eligibility exercise might be easy to game. Worse, those who just about miss the cut would be left chafing, resentful that people who earn a few hundred rupees less get several thousand more. A cut-off criterion that is so arbitrary cannot be equally just to everyone.
If NYAY’s addressability is doubtful, its affordability is no less so. Its annual bill would be an eye-popping ₹3.6 trillion, which is more than a fifth of India’s total projected tax revenue for 2019-20. Simply making payouts of this size with no expenditure cuts elsewhere could blow the national budget apart, with all the excess cash around setting off inflation, an “invisible tax" that the poor bear the brunt of. To keep the economy stable, radical reductions would have to be made in other outlays. Relatively wasteful subsidies could perhaps be spiked—on fertilizers, for example, rather than food and kerosene—though this would risk a backlash from a sector in distress. Another way to arrange the money could be to raise taxes, particularly on the rich. French economist Thomas Piketty had advocated a tax on wealth, but this proposal is riddled with difficulties of asset valuation and tax application. In other words, short of a radical overhaul of state spending, such a grand dole looks unviable.
Yet, in principle, an assured income is agood idea—but only so long as it meets two conditions. One, it must not violate the Fiscal Responsibility and Budget Management Act’s 3% cap on the gap between government revenue and expenditure. And two, it should be fair to everyone. To minimize discretion over who is eligible and who is not, we’d need a universal basic income that excludes only the obviously better-off and those who opt out. For that to prove feasible, though, India’s economy may need to double. We’re not ready yet.