The perils and potential of Congress' Nyay scheme

Last Updated: Wed, Mar 27, 2019 11:45 hrs
farmers in India

As the Lok Sabha election draws closer, the Congress unveiled an ambitious plan to tackle poverty. As part of its message to the country, countering the BJP, Congress chief Rahul Gandhi put forward an ambitious minimum income guarantee policy to help the poor.

In India, the concept of a minimum basic income similar to a Universal Basic Income (UBI) got some attention when then Chief Economic Advisor Arvind Subramanian proposed a policy similar to UBI in the 2016-2017 Economic Survey. The government announced last month a scheme of providing Rs.6000 per annum in three instalments to small and marginal farmers.

Congress policy & existing situation

If the Congress comes to power, their plan involves providing a minimum income of Rs.6000 a month to 20% of the poorest families. This policy aims to build on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Speaking on this, Gandhi said in part, “This scheme will be implemented in a phased manner, there will be a pilot project first and then the entire scheme will be started. This scheme is fiscally prudent, it is doable and all the fiscal calculations have been done.”

Rahul Gandhi, at an event in Jaipur said former RBI Governor Raghuram Rajan was consulted on this policy. Rajan, in an interview to NDTV commenting on the policy said in part, “We have seen over time that giving money directly to the people is often a way of empowering them.” He did add that there are questions that remain in terms of targeting, and if this will be a substitute to other subsidies or add-ons.

Two economists - Abhijit Banerjee and Thomas Piketty are advising the Congress on this policy. Banerjee, in an interview to Caravan magazine speaks to the policy’s finer points. His approach is to start small and then scale up saying in part, “The goal is to reduce the number of schemes over time and replace them with a transfer, with one efficiently run system.” Both parties have resorted to and promised loan waivers as a way of easing the financial pressures, which some economists have stated isn’t the right approach. A minimum income does not tie down people to farming. Essentially, a policy of minimum income does not discriminate based on occupation.

Earlier this year, a government appointed committee led by Anoop Satpathy a Fellow at the VV Giri National Labour Institute (VVGNLI) recommended raising the minimum wage to Rs.9750 per month from the present Rs.4576 per month. The Congress is betting on their policy touching the populist chord in the right way to spark voter interest. The Economic Times editorial stated that the policy stands between promising the moon and being loony. The editorial breaks down the cost of such a policy to be an estimated Rs. 360,000 crore or about 1.7% of the GDP -

The only way this can be implemented without descending into fiscal ruin is to roll all other subsidies for households into this one. There is no need for a separate food subsidy, or a fuel subsidy, once you provide this much of cash subsidy.

Piketty, for his part, says its high time that income inequality is treated seriously in India, saying in part, “It is high time to move from the politics of caste conflict to the politics of income and wealth distribution.” His acclaimed book “Capital in the Twenty-First Century” dealt with growing inequality since the industrial revolution. His work has earned him the title of ‘modern Marx’ from The Economist. He’s also ambitious in terms of looking at UBI as a realistic policy. In a 2016 column for Le Monde, he argued that the thinking on this is too small –

The question of justice is not simply a matter of 530 Euros or 800 Euros a month. If we wish to live in a fair and just society, we have to formulate more ambitious objectives which cover the distribution of income and wealth in its entirety and, consequently, the distribution of access to power and opportunities.”

UBI in a global context

The plan is certainly ambitious but it isn’t entirely original. To add some context, in the US, there’s been a debate about a Universal Basic Income or a citizen’s income. The premise of this is to provide enough to cover the basic costs of living. It’s fundamentally a way to offset job losses due to technology and automation. Some big names have spoken in favour of a basic income. Facebook co-founder Chris Hughes argued that the richest 1 percent should be taxed more as a way of making the basic income policy affordable. Richard Branson stated that a universal basic income is inevitable.

It’s a policy that is gaining traction with the Congress’ latest announcement. Nayanika Mathur, Professor, University of Oxford, argues that for India, this is the right time for a minimum income guarantee. In a column for The Wire, she stated that this follows trends elsewhere.

The talk of a minimum income guarantee is a welcome return to substantive issues of policy and the question of what kind of a country India can imagine itself becoming. Such a state-sponsored system of ensuring a base level of human existence has existed for much longer in Europe, with even the United Kingdom holding onto its system of benefits.

Mathur cites “Give a man a fish” by James Ferguson which talks about cash transfers and basic income in Africa. The argument here is between a distribution model and an employment generation model. One of the main criticisms of the Modi government is that it hasn’t kept its promise of reducing unemployment.

Challenges

The obvious danger from an economic standpoint is how fiscally responsible is such a policy. The prohibitive costs associated with a minimum income guarantee would certainly be huge and make up a significant portion of the GDP. According to the Economic Times, India collects under 17% of it’s GDP as taxes. NITI Aayog Vice Chairman Rajiv Kumar criticised the policy.

The other challenge, as pointed out by Abhijit Banerjee himself will be targeting. He boils it down to this equation – “would you rather have some poor people left out or would you have some poor get more money?”

More columns by Varun Sukumar