An announcement made by Rahul Gandhi, few days before General Elections has become a hot topic of discussion these days in India. He said that Rs 72,000 per year will be given as minimum income to poor families, benefiting around 5crore poor families i.e 25 crore people, if his party is voted to power in Lok Sabha polls. The scheme have been named Nyuntam Aay Yojana (NYAY).
This promise also formed integral part of manifesto of congress party, which was declared earlier today . Since, the amount promised to be distributed under this scheme is huge which have induced opposition, economists and general public to ask question about the fiscal and economic feasibility of this scheme.
During elections, it is very easy to make promises like Rahul Gandhi have made but after coming in power, it is very difficult to withstand these promises made in manifestos and meet the expectations of the voters. In certain cases its rather impossible to implement such promises without making significant adjustments, which seems to be the case with this NYAY scheme.
No doubt, the intentions behind the scheme is good and it could help the families, specially women living under poor conditions and those who suffer from domestic abuse and violence. So, this minimum income guarantee scheme proposed by the Congress is good in theory but needs to take into account the fiscal realities of India. The NYAY scheme has a estimated expenditure of Rs 3.6 lakh crore(around 1.7% of the forecasted gross domestic product (GDP) for 2019-20) more than the existing Rs 3.34 lakh crore expenditure outlined in the 2019 budget. Since the Congress party announced that the NYAY scheme will not subsume any existing government poverty alleviation schemes, it implis that government of India would be spending Rs 6.94 lakh crore on subsidies if the Congress comes to power. This is a lot of money, an issue could easily derail the scheme as well as nation’s economy. In economics, there is nothing without funds, hence, the question is where is this money going to come from.
Taking into account the current fiscal deficit of India, the scheme may not be feasible. Given the present state of economy we cannot add another 7 lakh cores of subsidy.The fiscal deficit of the country will increase. This may lead to increase in revenue and taxpayers have to suffer. Cutting down of expenditure on other important projects and sectors could also be witnessed.
This scheme is projected to directly benefit poors but identification of poor families in Indian is not an easy task. It requires intensive surveys and identification process in order to identify the poor families. It is a difficult task because the facts and statistics of poor and poverty in India keeps on dwindling, reason being country’s maximum population is involved in informal sectors where income keeps on changing.
Currently, the government spends a lot of money to help the poor through a variety of schemes such as the MGNREGA, Janani Suraksha Yojana, PDS, fertilizers, MSPs, electricity, Integrated Child Development Services, Indira Awaas Yojana, National Livelihoods Mission, Ujjwala to name a few. All these schemes are available for poor people but once poor people will start to minimum income they might not remain eligible for all such, this is also one of major concerns.
What happens if one family has an income of Rs 6000 and another Rs11000 ? Will the former receive Rs6000 while the latter will receive only Rs1000 ? If thats the case why should anyone below 12000 do any work once they earn Rs 6000 in a month since their income will be Rs 12000 regardless of what they earn.
Another major concern is that of inflation. This concern stems from the fact that incomes of a large section of population will go up suddenly. This higher income will result in increasing demand of the same set of goods and services available in the market and will ultimately lead to higher prices. This will become even a bigger problem for the economy if it coupled with reduction in labour. There have been various examples around the world which shows that MIG schemes leads to reduction in labor. For instance- There are various western countries, where on an average 5% reduction in working hours of individuals have been recorded due to the implementation of such schemes. In case of India, the scenarios may get worst as the population is very high as compared to Western countries. This may also lead to less supply of labor and high cost.
The scheme involves distribution of free money from the government, and free money is never a bosting factor economy wheather its in form of waivement of loans or subsidy of minimum wages.
The current fiscal space of India is not conducive for such a high-expenditure scheme. “The government that comes needs to see what the fiscal space looks like. As of now, it is very tight. You cannot add a scheme upon scheme, specially a scheme involving distribution of free money. Congress party itself have some of very highly qualified and experienced economists such as our former PM Manmohan Singh, so i don’t believe they are unknown of all these economic consequences. What I believe is that, congress party itself is well aware of possible difficulties with NYAY scheme and how it is practically non feasible. And this scheme is nothing more than a desperate attempt to lure innocent poor people that comprise a major vote bank throughout the nation.