Congress’ Income Guarantee Scheme Is Feasible If...
The Congress party’s minimum income guarantee scheme for India’s poorest will have “implementation challenges” but is “fiscally feasible” if subsidies are pared down, according to economists.
If the scheme is implemented without leakages and there is a focus on increasing jobs in the economy at the same time, the pressure to finance the scheme will ease over time, they said during an interaction with BloombergQuint.
The Congress promised to guarantee a minimum income of Rs 12,000 a month per family if voted to power. The Nyunatam Aay Yojana calculates a payout of Rs 72,000 a year per household, assuming the bottom 20 percent of Indians have an average monthly income of Rs 6,000.
BloombergQuint spoke to Radhika Pandey, economist at NIPFP, Madan Sabnavis, chief economist at CARE Ratings, and Narendar Pani, professor at NIAS, to understand the feasibility of the scheme.
Here are some edited excerpts from the debate:
What is your initial view on the Congress’ ‘NYAY’ scheme? It’s pre-election season. One side will call it a game changer and breakthrough. The other side will say this is a bluff. It is not doable and will ruin our economy. What is your stand on social and economic merits of this scheme?
Radhika Pandey: In principal, the scheme is very good because whenever we have such schemes of direct income transfer targeted to the poor, these are less distortionary compared to other kinds of so-called welfare schemes like farm loan waivers and other kind of schemes. In principal and by design this is the most ideal form of support to the targeted poor.
Having said that there are questions on the details of the scheme. It is not clear whether the target is Rs 72,000 per annum or Rs 12,000 per month. The deeper question is the fiscal implications and how this scheme will be fiscally managed, whether it could be at the cost of other welfare schemes, would it be at the cost of other public sector welfare programs or either through the rationalisation of subsides.
All those things are not clear about the fiscal implications of this scheme. But by design it is less distortionary as compared to other kinds of support given to the poor.
Some people are arguing against the scheme on a very basic level. That is to grow an economy should you be providing opportunity to people to work or just give them cash? That seems to be the problem some people have with this scheme.
Madan Sabnavis: One should provide employment rather than give cash. But various government schemes in the past, that have aimed at generating employment, have not delivered the kind of results which were required.
If you look at MGNREGA scheme which is popular, it is effective to a certain extent. But we have seen that it hasn’t elevated poverty to a great extent. So, therefore in absence of the government having the ability to deliver employment by creating jobs for all those who require it, I think cash transfer appears to be a more direct effort. In case, if implemented properly without any leakages, and if it is targeted well, then it will be delivering the results.
Ultimately, we can see how the government can provide jobs. It is difficult. You can’t provide productive jobs because you need to expand the public sector and today, we are talking about curtailing the scope of public sector. Look at the central government, the state government and public sector banks. They are cutting down on employment. The best alternatives in absence of this opportunity is to provide cash, and if you are able to do it within the realm of FRBM norms then I don’t see any harm in it. Especially because we ideological believe that DBT and Universal Basic Income is good. The Congress has put a number to it. But if we can manage it within the budget then it is fairly good.
They have said Rs 12,000 a month is the cut off. It is not clear whether the ceiling is Rs 72,000 a year which works to Rs 6000 a month. Will it be more or less? What if someone’s family income is Rs 4,000? Will they then get Rs 8000 more? What is the database? What are the questions which come to mind on some of these details which are important?
Narendar Pani: The main thing which we need to keep in mind is that this is not universal basic income scheme. It is the scheme which bridges the gap between what they earn and the minimum which is now being promised. That is an important difference. If you have economy growing with enough jobs for the poor the amount that you have to spend is much less. So, the pressure for government to generate funds for it could be much less.
What could we think of the Rs 12,000 cut off?
Narendar Pani: Rs 12,000 a month which is maximum of Rs 72,000 a year which may or may not be what Congress meant.
How will the Rs 12,000 cut off work? They have taken average in their calculation as Rs 6000 as annual income per month for households in bottom 20 percent. Do you think that kind of cut off makes sense?
Radhika Pandey: There are a lot of assumptions to this number. How will any government identify poor people? There is no credible database on identifying the specific income levels of individual as well as households. There is an assumption made in this proposal that for the bottom 20 percent of the population, they are already earning Rs 6,000 per month and so they will be provided Rs 6,000 per month more, so that they at least earn Rs 12,000 per month. Then that is inconsistent to Rs 72,000 per annum mark that the scheme proposes. There is lot of loopholes and lack of clarification on what exactly they are targeting. The main loophole is how the targeted poor will be identified? What will be the criteria for identifying poor for rural areas? What will be the criteria for identifying poor for urban areas?
5 crore number is questionable. If we look at CMIE Household survey data, as per our analysis if we look at families earning less than Rs 72,000 per annum, we found that they are around 3 crore such households. There are lot of assumptions which have gone into this analysis. But the main challenge is how the targeted poor will be identified.
How do you identify the targeted poor? Some reports say that 2011 census has been taken as a base. Is that accurate enough to determine household income? There may be cash transfers and no bills. It may vary month to month. How do make track of it?
Madan Sabnavis: It is challenging to identify the poor. If you go by Ayushman Bharat scheme of the PM, they have a criterion where you look at 2011 census. When people are interviewed for conducting surveys, they would have disclosed what kind of assets they own, what kind of income they are earning. It seems to be starting point. But we should not be bogged down by how it will be done. Once we have a scheme in place there will be a way to find out who the targeted core people are.
One Congress member who worked on this number has clarified that it is assumed today that a poor family is actually earning Rs 6,000 per month. Congress is promising top up of Rs 6,000. So, it will be Rs 72,000 provided by government if it comes to power. Plus Rs 72,000 which they are already earning. So, they are talking about Rs 1.44 lakh per annum for a poor family.
Identification won’t get right in the first instance. It will happen over a period of time. There will be definitely problems of identification, there will be lots of leakages, corruption, who enters and who doesn’t? But we have to live with this system. As long as we set such schemes in motion then that could be fair enough.
Do we agree that it is the need of the hour or is it just an election bluff?
Narendar Pani: The basic issue which we need to keep in mind is that this is a dynamic program. It only argues to fill up the gap between the income and what is being promised. If the economy does well and if the jobs are created for the poor, then demands of the scheme will naturally go down. We can quibble about numbers which will ever get a perfect estimate of the poor or how much it will go but we can focus on the fact that the more jobs you get, the less people will depend on this scheme. That is an important factor because that will directly target the idea of jobless. And this is the first time, from 1991, that we are thinking on those terms.
You need real time tracking for it. The idea is if a family crosses the Rs 12,000 a month threshold then they come out of the ambit of scheme. How would you track it?
Radhika Pandey: That is a challenge. By nature this scheme is dynamic. For some professionals, income is seasonal. So, for some months they would be earning more than Rs 12,000 and so they are outside the ambit of the scheme. Then for some months, for example farmers don’t earn throughout the year, then they will be within the purview of the scheme. So, all these are challenges which will require time, state-center coordination, proper database of income levels. It cannot be implemented in the short run. It will require a lot of pilot runs and see the challenges in its implementation and then carry forward.
Does this mean subsuming other subsidies?
Madan Sabnavis: They will merge certain social welfare schemes. There are Rs 7 lakh crore of such kind of welfare schemes which are already in motion. We have NREGA, insurance programs for farmers and for health. If you are undertaking a cash transfer, then logically they are giving you money and you can use it as you want to. So, you can pay it premiums of health, or crops.
Similarly, for food subsidy we have DBT which is done on a pilot basis in certain districts. This can be made a bit more universal and money can be given. It should be a combination of fresh infusion of funds under these particular schemes like what PM has done in budget for Rs 75,000 crore where the provision has been made. Since this number is very large and we have to stick to number of 3.2-3.4 percent fiscal deficit number, it will not be possible to generate this kind of money.
The other thing could be to get rid of some of the existing scheme and put it all into minimum income scheme.
It is tricky today of the state and center sharing the fiscal burden. We are seeing this for PM-Kisan where BJP is saying that Congress ruled states are not implementing it. It could be vice-a-versa. If you come into state and center fiscal sharing, it becomes difficult. Isn’t it?
Narendar Pani: You need a system of expansion where you can take in to account how much a family receives already and add on how much you want in pre-determined fashion. If you create a scheme like that it is likely that the non-poor people would not be a part of it as it happened in case of NREGA.
You use little knowledge of what you have of working with welfare schemes, the amount that goes to the poor and then top up to the extent you want. May be even more of what has been promised per family. But when it is done, and you have already promised them, then you will see the additional amount that is required is not substantial. The entire amount has to be paid by the government, irrespective of what family is already getting, whether it is a good year for employment or one in which there is no employment. We need to think more rather than taking this calculation at face value.
Radhika Pandey: 3.6 lakh crore can be the outer limit depending on the nature of the scheme. If it is more in nature of a top-up for families who are already earning more than Rs 6000, there the amount of contribution will be lesser. So, fiscal burden will vary depending on fiscal composition.
There could be ways of identifying state-central cooperation and the tax burden which can be shared. It is required to do thorough rethinking of schemes which are currently in place and identify which of the schemes could be merged, rationalize or not benefitting the targeted poor and then come up with a tax burden sharing mechanism.
Can we afford it?
Radhika Pandey: We can fiscally afford it if we think of rationalizing existing subsidies. The other challenge is we should not be sacrifice other productive investments which are going on. We have to take a tough call of rationalising subsidies, so we don’t do it. But we take the easier route of cutting some of the productive investments or cutting infra spending. Over last few years, the government has been hand holding infrastructure investment which is very important for generating employment. Going forward, this can’t be the final assault on poverty.
We need to have productive employment opportunities. We need to have infrastructure, construction sector picking up well. Expenditure on those sectors should not be cut to provide income support and make this scheme feasible. It is important to look at subsidies, rationalise it, rationalise some of the tax concession such that the scheme gets feasible. It is very much feasible without losing site of fiscal trajectory but at the same time the risk is that it should not be at the cost of cutting down on productive investment and not going by passing the fiscal trajectory because that would then lead to higher public debt, higher interest rates which will, in the medium and long run, harm the poor the most.
Madan Sabnavis: UPA and NDA has paid obeisance to FRBM rules and there is always the intent to move to 3 percent. I don’t think even if Congress comes to power and they bring in this particular scheme that they will breach that particular mark. When we are looking at Rs 3.5 lakh crore it could be more staggered over a period of time.
If in the first shot in the first year we go and provide all the 5 crore families this particular amount then this entire money will get exhausted. No government will work on this particular basis. It is more likely to be staggered over a period of 3-4 years. There will be a merger of certain existing schemes, things which deliver similar kind of benefits.
On the issue of productive and non-productive schemes, I have a different view. Even if we are giving cash to people then we should remember that this money will be spent on consumption and they will create demand for products for both food and non-food products. I don’t think this as a negative thing when you are giving cash to people because the money will not be hoarded but spent. In the final run, where we had demand side problem in the economy today it will be helpful.
Narendar Pani: Yes, certainly. If we get the right kind of growth, if we get growth which provides job for the poorest. We are talking about jobs which will provide Rs 72,000 a year. For that minimal level of job, then any decent sensitive growth strategy could be a priority. The moment that is achieved, the cost of the schemes disappears. It is important to recognize the growth priorities. We have gone too long with the idea that it is okay if we get jobless growth. We must recognise one of our main priority of growth is to provide a basic minimum income guaranteed which is less than what the world bank says is the poverty line. If we cannot provide it then what is the point of being the third largest economy in world.
Watch the full debate here: