Congress Beats BJP To Income Guarantee Plan But Leaves Math To Manifesto
Former Finance Minister P Chidambaram. (Source: PTI)

Congress Beats BJP To Income Guarantee Plan But Leaves Math To Manifesto

The Congress which beat the BJP to announce a minimum income guarantee scheme on Monday, will divulge the details only in its election manifesto.

Making a distinction between the Universal Basic Income and the Minimum Guarantee Scheme, former Finance Minister P Chidambaram said the Congress’ proposal is progressive in terms of the fund transfer. He did stop short of discussing the financial implications in detail. “All I can say is that it is doable”, said Chidambaram in an interaction with BloombergQuint.

We will do the math when we are in government. Because all the information will only be available when we are in the government. Once we have a number and we are in the government and we assess the resources and the sources of revenue, we will tell you exactly how to implement it.
P Chidambaram, Former Finance Minister

Congress President Rahul Gandhi yesterday promised a minimum income guarantee scheme for the poor if they are voted to power. Arvind Subramanian, India’s former chief economic adviser, had discussed the idea of a universal basic income for the poor in the Economic Survey for 2016-17. The Congress’ promise is not exactly the same, according to Chidambaram.

"What we are talking about is a nationwide scheme which is an adaptation of the universal basic income idea. It is not UBI," he said. "Under UBI the same amount of money is given to everyone, including you and me. This minimum income guarantee is progressive. Once you agree upon a minimum level of income a family must have depending upon the distance of the family's current income from the desired income, that gap will be covered under the scheme."

Some families will be 10 percent below the minimum level, some 30 percent and some 70 percent. So the amount that will reach each family will obviously be different.
P Chidambaram, Former Finance Minister

Chidambaram also said that some of the “demerit subsidies” will be terminated to make fiscal space for such a scheme. "Take for example ICDS (Integrated Child Development Services). It is a scheme intended to achieve certain objectives. As long as those objectives are valid and good that scheme will continue. But some schemes will outlive its utility," Chidambaram noted. "So we will ask ourselves in May or June, which are the schemes that have outlived their utility. And whichever are the ones that continue to deliver the outcomes, those schemes will continue."

Therefore, each scheme designed to achieve certain objectives, as long as the objectives are good and valid they will be continued.
P Chidambaram, Former Finance Minister.

The senior Congress leader added that the government will have to "rearrange" its priorities, and when it does that, fiscal space will automatically open up for such schemes. "We find resources to fund a bullet train of Rs 1 lakh crore. We find funds to send a mission to moon and Mars. I am not questioning the correctness of those ideas in this moment. If we can find funds for those schemes, we can and we must find funds for what I am proposing and what the Congress President proposed earlier today. We can do it."

Watch the full interview here:

Also read: Here’s What Rahul Gandhi’s Minimum Income Guarantee Scheme Will Look Like

Here are excerpts of the interview:

The Congress party president has been promising loan waivers in every state that he speaks in. That as you’d agree is a temporary solution. Now over and above that, the party seems to have proposed a minimum income guarantee scheme. Can you explain to us what the scope and scale of the scheme will be?

Loan waiver was state-specific and contextual. The states in which Congress was elected in the recent elections have implemented or are implementing loan waivers. So that is done and dusted.

Now what we are talking about is a nationwide scheme, which is an adaptation of the universal basic income idea. It is not UBI. We did not say universal basic income. It is an adaption of the principle behind UBI. We are going to target the poorest of the poor in the country and progressively ensure that every family is brought up to a level of income which is a minimum income.That I think is an idea whose time has come, and we can implement it if we form the next government.

Is it different from a universal basic income only in that it is not universal? That it is only targeted for poorer households of India? Is that the key distinction that you would draw?

That is the key distinction, but it has other distinctions as well. Under UBI, the same amount of money is given to everyone, including you and me. This is progressive. Once you agree upon a minimum level of income which a family must have, depending upon the distance of the family’s current income from the desired income, that gap will be covered under the scheme. Some families may be 10 percent below the minimum level, some may be 30 percent below the level, and some may be 70 percent below the level. So, the amount that will reach each family will obviously be different. Everybody will be brought up to a minimum level.

Can you explain to me what that minimum level is? Could you talk us through what the broad parameters at least of this minimum income guarantee scheme are. What is the universe of the beneficiaries, the transfer of income amount and the total cost effectively to the exchequer?

We can’t at this stage. You are asking me to do the math now. As I said we will flesh out the details in the manifesto and you will have to wait for the Congress party manifesto.

You have always been very fastidious about details as finance minister. So, I am sure you aren’t surprised that I’m asking you for the numbers because the scope, the scale of this scheme, the affordability for the exchequer and the implementability will also depend on really how you define the universe of the scheme? And therefore, Ï’m asking for whatever you can share with us at this stage to make this scheme less a political promise and more an economic promise.

All I can assure you is that it is doable. The first question you should ask yourself is should this be done? Anyone with a conscience, anyone with a heart will say yes this should be done. Look at the Oxfam report. If that doesn’t move your conscience nothing else will. So, we have to bring everyone to a minimum level. The second is that the poor have the first right and the first charge on the resources of the country. So, we have resources, we have a Rs 187 lakh crore or so GDP. We had an annual expenditure of Rs 118 lakh crore. It will grow. The first charge on the total resources of this country should be to make sure that the poor are brought up to a level where they’re no longer below the poverty line.

Once our priorities are rearranged, so that this becomes a matter of high priority then we will find the resources. We will do the math when we are in government. Because all the information will only be available when we are in the government. Only today I read that the government will announce the new poverty numbers in June 2019 and that will show a very sharp decline in the earlier estimates of poverty. So that’s a starting point. So, once we have a number and we are in the government and we assess the resources and the source of resources we will tell you exactly how to implement it.

Nobody in their right mind can argue that the poor don’t have the first charge on any resources that this country has. But why has this realisation come now. Your party had two successive terms, not very long ago, and at that point in time universal basic income, or a quasi-UBI, or a minimum income guarantee was not a proposal on the table. So, what has prompted the timing of this offer? Is it simply not just electoral politics?

Why don’t you ask the question: why was it not implemented 50 or 40 years ago? These are irrelevant questions. In the 10 years we were in power we lifted 140 million people out of poverty. And that’s accepted by every agency, everybody, every think tank and economist. Fourteen crore people were lifted out poverty by variety of measures. MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) was a measure. When it was announced, there were fierce critics but today the fierce critic has become the most ardent champion of MGNREGA. We introduced Aadhaar and DBT. The critic said that when we come to power, we will abolish it. And now the critics have embraced it but exceeded the authority given by law. Every novel idea will have its share of opponents and critics. We cannot be daunted by such criticism. If we are satisfied as we are satisfied today, that this is an idea whose time has come, no family should be left behind.

I am not sure of an earlier statement of yours. We find resources to fund a bullet train costing Rs 1 lakh crore. We find funds to send a mission to the Moon and Mars. I am not questioning the correctness of those ideas at this moment. If we can find funds for those schemes, we can, and we must find funds for what I am proposing and what the Congress president proposed earlier today. We can do it.

I am not suggesting you don’t get any credit for what you did in the previous two terms. I think the question I’m trying to pose to you is this: Is there something specific about a minimum income guarantee scheme or a UBI or a quasi-UBI that works better now than it would have worked five or seven years ago? So, I’m asking you a very economic question. It’s not a political or defensive question. Second, I don’t doubt that we have resources as a nation to put to them, what I’m trying to understand is what’s the trade-off regarding those resources. So, for instance, will this minimum income guarantee scheme or proposal subsume a certain amount that is currently targeted towards subsidies, or will it subsume or replace a certain amount that goes towards either agricultural subsidies or any other kind of rural subsidies?

That doesn’t follow. Take for example ICDS (Integrated Child Development Services): it is a scheme intended to achieve certain objectives. As long as those objectives are valid and good that scheme will continue. But some schemes will outlive their utility. Those are decisions, conclusions that have to be drawn at any given point. So, we will ask ourselves in May or June, which are the schemes that have outlived their utility, and which are the ones that continue to deliver the outcomes we wanted, those schemes will continue. But irrespective of that, irrespective of the current schemes and how many of those will continue or not, we will find resources for the minimum income per family scheme. A minimum guaranteed income for every family to bring them to a minimum level of income.

You’re not making a commitment one way or the other on whether this will subsume certain subsidy schemes. You said if those schemes have reached a natural end of their lives or end of their utility then you’ll no longer prolong them...

Why should I make a commitment now? As I said if a scheme is intended to serve certain objectives and those objectives are still valid, certainly the scheme will continue. And I gave you an example: ICDS, mid-day meal schemes will continue. And I can give many more examples. But we are not discussing that today. We are discussing the merits of the scheme announced by the Congress president and whether we can find the resources for that scheme. And I assure you, we can, and we will find the resources.

But how do we discuss the merits without knowing who or specifically what universe this scheme is targeted at?

You are welcome to discuss the merits of the proposal in the month of May and June.

But this proposal has been proclaimed today, so I would imagine that the party has thought through what it is that they are putting on offer...

We have and as I said in a tweet. We will flesh out the details in our manifesto. So, wait for the manifesto. And we will also then flesh out the administrative measures and steps that have to be taken when we are in government.

There are a variety of different estimates that have been put to quasi-UBI schemes of this nature. For instance, the former CEA, in a column that was published in the Business Standard, suggested that a partial or a quasi-UBI of about Rs 1,500 per month or Rs 18,000 per annum, per household would cost about Rs 2.64 lakh crore or 1.3 percent of GDP. This is to cover 75 percent of all rural households. There’s an estimate in the 2016-17 Economic Survey that suggests a UBI scheme that could cost up to 5 percent of the GDP. Where is the cost of what you’ll have envisaged - somewhere in between this?

Dr. Arvind Subramanian has done calculations to show that a modified scheme will cost no more than 1.5 percent of the GDP. We can do the math, we will do the math. Having announced it are you suggesting that we are not capable of doing the math? We will do the math. The question today is that is this a good idea? Is this an idea that will be welcomed and accepted by the people of India? Is this something which everyone—that the poor, the middle class and the rich—will support? Because we cannot have amid us a section of the people who are abjectly poor. I think everyone will support the scheme and we will find the resources to fund the scheme. We will tell you how we will do it. Many of the ideas and aspects will be explained in the manifesto and when we are in the government, we will naturally roll out a full detailed plan.

We did it with the loan waiver. When we announced the loan waivers there were fierce critics, but we rolled it out by June 2008 and about Rs 60,000 crore of loans were waived for farmers. Many people at that time said it is not doable, but we did it. Therefore, I’m confident we will do it and we can do it. In fact, we must do it. You must support us and help us do this.

Would you expect the distortive subsidies to fall off?

You know as well as I do that there are merit subsidies and there are demerit subsidies. Merit subsidies will obviously continue, and demerit subsidies will have to be revisited. The mid-day meal is a subsidised programme and it will continue. It is intended to achieve a certain objective that a child is not hungry in the middle of the day. That the child does not go home hungry and the meal will be provided in the school.

A midday meal scheme might appear to be an anti-poverty programme but please remember that the richest countries provide school lunch. So, the midday meal is not a anti-poverty it has got other benefits and externalities. Therefore, each scheme is designed to achieve certain objectives and as long as the objectives are good and valid, they will be continued.

Do you envisage this being an extension of the cooperative federalism? Do you see this is as a centre and state combined initiative, or do you see the centre funding most of it? Because there are challenges there as well, if the state has to play an important part in the implementation of this.

The UPA and the Congress have always emphasised that the centre and states must join together in implementing any national programme. When we implemented mid-day meal schemes it was a joint effort of both centre and states. This obviously will be a joint effort. I cannot believe any chief minister, or any state will oppose the idea. This is so fundamental to our sense of nationhood that everyone in our country has a minimum level of income. It is so fundamental to that idea and hope that no chief minister or state will oppose it and will come on board. But the bulk of the responsibility will rest on the centre. I do not regard this as a burden. I think this is a national obligation. The vast part of the responsibility will fall on the shoulders of central government, and the states will bear the remaining part of the responsibility.

But you envisage this being both co-funded in some fashion by the states as well as more importantly co-implemented?

We will talk about it with the chief ministers. We will ask them how they will share the responsibility and we will arrive at a consensus.

And let’s say for instance you are confronted with a state that has an administration that is not necessarily willing to help you in this programme.

If any state opposes the idea that the poorest of the poor should be lifted to a minimum level of income, I would call that state heartless.

Do you believe that we have within the budget, pegged to a certain level of fiscal deficit, the resources to be able to fund a programme of this nature or do you believe this could have, albeit temporarily, but an effect nonetheless on the fiscal deficit? Are you pegging this to let’s say a 3.1 or 3.2 or 3.3 percent fiscal deficit level?

These questions should be put to a government which has consistently slipped on its fiscal deficit target. I have adhered to the fiscal deficit target when the UPA was in power. I am committing the Congress party to the path of fiscal prudence, fiscal discipline. We will adhere to the FRBM targets. In a growing economy, given the size of our GDP and the stage of our development and the size of our annual expenditure, I think it is possible to do it today. Thirty or forty years ago it wouldn’t have been possible as the GDP and the revenue of the government would not have permitted a scheme of this kind. Today we are satisfied that given the size of our GDP and the scale of our expenditure it is possible to implement a scheme of this kind, progressively. We will start with the poorest of the poor and then go up to cover all the poor and bring all the poor to a minimum level of income.

But you won’t tell me what number of families will be benefitted or something like that at this stage?

We will in the month of May and June. You’re welcome to that meeting.

But there are critics…

For which scheme does not have critics? Any idea and there will be a critic. I am not discounting criticism. I am not belittling criticism. All I am saying is that if there is genuine, valid criticism we will take that into account and modulate the scheme. We will take those criticisms into account. I welcome criticisms, without that how do we know if we are on the right track.

There’s some of the criticism that the UBI concept has drawn. When it’s not universal, for instance - Saksham Khosla wrote this paper for Carnegie India which said “By discarding universal coverage, the survey leaves the door open for inefficient means-testing. Targeting performance can vary quite widely, and any savings generated thus can be offset by high administrative,private, social, and political costs. If targeting must be instituted,universal transfers among clearly defined vulnerable groups offer a tentative answer to this dilemma”. Other critics have said UBI reduces the incentive to work, or asked if income should be detached from employment or be given unconditionally?

I don’t have to answer those criticisms because we are not implementing UBI. We are adapting the principle behind UBI. And we have announced a minimum level of income for poor families. How many times can I explain the difference between UBI and minimum income level for each family? They are chalk and cheese. We are not talking about UBI. We are talking about a very different scheme that draws the principle of UBI and applies to our situation and our needs. Our situation is that there are still significant number of families in the country who are very poor. We are trying to bring everybody to that level of income so that nobody is so poor that they can’t find food for their family, that they can’t get clothes for their children, that they don’t have a roof over their heads and that they can’t buy basic medicines. That is the kind of poverty we are targeting. We’ve targeted poverty in the UPA earlier thorough other schemes and lifted 14 crore people out of poverty. Now we are going further, the last mile in the war against poverty, and we are targeting the very poor and bringing everyone to the minimum level of income. It is very different from UBI. Therefore, the math concerning UBI does not apply here. This math will be worked upon the level of poverty that is assessed in May, June 2019. At what distance each percent of that poor population away from the minimum. Some may be 10 percent away, some 20 percent away, some 70 percent away and there will be different amounts transferred to each family so that all of them come to a minimum level of income. We have thought through it, we are satisfied that it can be done and we are convinced it must be done and we will find a way it to do it.

If your party does come to power, will this be the first thing you’ll will do?

There are many things which can claim to have the right to be the first thing to be done. How can you say that national security is less important, or education is less important, or healthcare is less important? But this is high priority and it will be addressed with the sense of urgency it deserves. Equally we must address the challenge of nutrition, educational deficiencies, human development. Those are equally important challenges. So, everything will be addressed.

Well I’m not denying that they are important as well...At this point it’s only a political proclamation, we’ll wait for the details to be able to argue this with you, to understand the economics behind this proposal. But you clearly have stolen a march over the BJP government and that is that you’ve put your proposal out there first. In some ways forcing them to follow yours. 

We are not in a competition with the outgoing government. We reflect and make announcements based upon on our convictions, our philosophy and our commitment to eradicating poverty. Therefore, do not pit us in a race with the outgoing government. Please take what we say and assess it on its own merits. On calm reflection, everyone in the country will agree that this is an idea whose time has come. As a nation we must rally together, find the resources and implement the scheme. I will welcome the critics first rather than the cheerleaders because it is the critics that will tell us where we are wrong and likely to go wrong. So, we will factor all that before we actually roll out the design of the scheme. In the manifesto you will get the contours of the scheme, in government when we announce it you will get exactly the specific details.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.