In an effort to seize the initiative from Indian Prime Minister Narendra Modi’s Bharatiya Janata Party, the main opposition Congress Party has held out the promise of creating the world’s largest “minimum income scheme” for nearly 250 million poor people if voted to power in general elections beginning in two weeks.
Critics have slammed it as a populist measure to entice voters and questions have been raised on the funding of a scheme estimated to cost $52 billion. The ruling Bharatiya Janata Party has dismissed it as a “false dream” being shown to the people and pointed out that there are already a number of social welfare schemes for the poor.
But the promise has turned the spotlight on an idea that is getting attention – an income for the country’s lowest economic strata.
“The final assault on poverty has begun,” Rahul Gandhi, the head of the Congress Party, said as he announced his pledge to give 20 percent of India’s poorest households, or 50 million families, a guaranteed income of about $1,050 a year.
Gandhi gave no details about how the ambitious project would be financed, but said that it would be fiscally prudent. “We’ve done all the calculations, we’ve asked the best economists.” It is being called “Nyay,” which means justice in Hindi.
Political analysts see the Congress Party’s announcement as a bid to outdo Prime Minister Modi, who last month announced a much more modest annual $90 cash handout for poor farmers. “The bigger the better in politics” was the refrain of many commentators.
Satish Misra, a political analyst in New Delhi, said the Congress Party’s promise would get resonance with tens of thousands of people disillusioned that the “good days” Modi promised when he came to power have proved elusive. “There is joblessness in the rural countryside, there is agricultural distress, people will look at this.”
Misra says it would bring attention back to bread and butter issues at a time when the ruling party has chosen to turn the focus on national security in the wake of recent tensions with Pakistan. “It would take the steam out of the external security narrative that the ruling party has been touting.”
A cross section of unskilled migrants from the countryside who flood mega cities like New Delhi and Mumbai in search of a livelihood say their principal challenge is not lack of an income, but meager wages.
“What I earn is barely enough to support me. I can’t think of any future,” said 36-year-old Parmanand Bhagat, who drives an electric rickshaw after trying his hand at two other occupations since he came from his village four years ago – working as a security guard and selling food on the pavement. “Only if I get some more money, I can plan ahead.”
Ramanand, a gardener who migrated three years back hoping to earn money to send back to his family in the village, faces the same challenge – his income of about $ 120 a month does not support their basic needs. “Buying enough food is a problem, clothing, education for my children, are also a challenge.”
The scheme has been announced at a time when the concept of a universal basic income has got attention in some developed countries such as Finland and France. In India, the debate has centered on giving an income to the poor. While a growing economy has rapidly lifted tens of millions out of poverty cutting the numbers of poor people by half since 2005, the country is still home to one-third of the world’s poor. Income disparities with its burgeoning middle class are huge. The country’s Economic Survey of 2016-17 studied the idea and even presented a model.
Economists say handing out a basic income to the poor would be viable if India phases out the hundreds of existing social welfare subsidies, such as cheap food for the poor, fertilizer subsidies for farmers and a rural jobs guarantee scheme that account for about 12 percent of the budget. Their success in tackling poverty has often been questioned: the subsidy programs are riddled with corruption and leakages.
But many caution that may never happen – the Congress Party has already said it will not end existing subsidies. “This will be an additional burden and can easily aggravate your financial situation,” warned Niranjan Sahoo at the Observer Research Foundation in New Delhi. He said it is very difficult to phase out existing subsidies. “For the simple reason, there will always be a strong vested constituency that would fight tooth and nail that it continues.”
While the debate continues, the key issue as election campaigning reaches fever pitch is: will the poor in India be swayed with the lure of cash in their pockets? Many are cynical, calling it an election promise that will never see the light of day. Others say they do not want a handout but decent work.
“I want to be paid a better wage, around $200 a month. We can work hard,” said Lakshmi Devi, who has a young son and whose husband never holds down a steady job. Lakshmi, who works as a helper in an office earning about $120 is emphatic. “We don’t want doles.”
And gardener Ramanand feels a payout will not solve the challenge of a brighter future for his children. “It can make us happy for some time, but it is also true that we will still be troubled, there will still be sadness inside us.” (VOA)
The concerns about funds being used for harmful purposes cannot be ruled out. It is due to these challenges many policymakers suggest that instead of making welfare payments to poor households in the form of unrestricted cash transfers the government should focus on in-kind transfers.
The idea of launching Nyuntam Aay Yojana, a cash transfer scheme that intends to provide Rs 72,000 per year to the poorest 20 per cent Indian families, by the Congress Party if it comes to power, has stirred a debate among the policymakers about whether the move is economically viable or is just a tactic by the Congress Party to garner votes in the upcoming general elections.
The discussions are foreseeable, provided that this intervention to ensure basic income to the poor households will cost the country somewhere between 1.5 per cent to 3.4 per cent of GDP, a number higher than the government’s expenditure on healthcare and education. The implementation of NYAY means an additional cost between Rs 3.6 lakh crore to Rs 7.2 lakh crore per year.
To put things in perspective, the expenditure of the proposed scheme is 2.2 times the budget of all centrally sponsored schemes. The party claims that they have worked out all the fiscal calculations before launching the scheme. However, this will be a major dent in India’s budget expenditure and will explode the fiscal deficit from the current 3.4 percent to 6.8 percent.
Apart from fiscal prudence, the other immediate concern surrounding the scheme is the identification of beneficiaries and the database that will be used for this. There is no official income database available with the government at the individual level and since most of the poor work in unorganised rural areas, there is no direct way of verifying their incomes such as through a payroll or income tax.
The proponents of the approach state that a good starting point could be Socio Economic Caste Census of 2011 if one goes by multi-dimensional aspect of poverty. However, one can’t ignore the fact that even if the scheme defines poverty by assets and not income for quick exclusion rules, the data is outdated. A scheme targeted at reducing poverty can’t use data that is seven-eight years old. Even if one ignores that, it should be noted that there are major methodological issues with how data was collected. This is reflected in the discrepancies that exist in the data collected through SECC and other governmental data. A fresh survey for the identification process will lead to possibilities of corruption as in other targeted schemes. For instance, various studies have shown that many people who are not below poverty line have BPL cards.
One should also keep in mind that there exist significant disparities across Indian states and districts in terms of income levels and affordability of basic needs such as education, healthcare etc. Therefore, the same amount that means a lot to a person living in a low-income state or a state that has good access to public facilities such as public hospitals, schools etc would not be enough for a person trying to make a living in a high-income region. As a result, a prerequisite for such a scheme is a detailed regional level survey on income characteristics of Indian states and districts.
Another major concern surrounding the scheme is its inflationary implications. It is argued that the act of transferring cash to the target population will boost their purchasing power, which would lead to an increase in demand for goods and services and, thus, push prices upwards. Advocates of the approach have tried to argue that studies around the world present a lot of evidence to the contrary.
An impact evaluation study by UNICEF in Sub-Saharan Africa showed that with the exception of temporary price rise during payment period, cash transfers has no impact on the prices. However, these evidences should be considered with a pinch of salt. They rest on the assumption that the money will be spent on useful goods, that will help the local economy in becoming more productive. Though this will not be the case always.
The concerns about funds being used for harmful purposes cannot be ruled out. It is due to these challenges many policymakers suggest that instead of making welfare payments to poor households in the form of unrestricted cash transfers the government should focus on in-kind transfers. This idea is supported by claim that in-kind transfers will help by encouraging the consumption of right things, such as healthy food.
Given India’s concerns about rising unemployment rates, jobless growth and the fact that we need to have effective utilization of our young population to gain a competitive edge over other economies, the promoters are trying to project that NYAY can prove to be a game changer. However, for the Indian economy, a better alternative would be to strengthen the existing public services landscape by removing social, political and personal barriers, along with carrying out structural reforms that leads to creation of more productive jobs. (IANS)