Rahul Gandhi's NYAY a test on fiscal prudence: Economy must be strong enough to bear pressure of Rs 3.6 lakh cr

If one is in principle okay with a universal basic income approach, then this scheme of minimum income guarantee is a modification of the same where the beneficiaries are not universal but a targeted section.

Madan Sabnavis March 28, 2019 13:12:56 IST
Rahul Gandhi's NYAY a test on fiscal prudence: Economy must be strong enough to bear pressure of Rs 3.6 lakh cr
  • The cost outlay of minimum income scheme is around Rs 3.6 lakh crore per annum if fully implemented

  • If the amount is being spread over a period of time, then it can be accommodated within the fiscal parameters

  • When schemes are merged and the resulting funds used for transfer purpose, the identification process would be easier

It is always necessary to sift announcements from policies being implemented as the former often do not materialise. This is the starting point of evaluating the feasibility of the minimum income guarantee scheme spoken about by an Opposition party which is an election promise. We have also had similar announcements of Rs 15 lakh being transferred to the accounts of the poor from the black money that would be unearthed. This has not happened. Therefore, we need to distinguish between an intention and its fructification.

This said, theoretically one can evaluate the economics of a scheme where Rs 72,000 is given to every poor family after due identification where preliminary estimates put it as 5 crore families or 250 million people. The cost outlay is around Rs 3.6 lakh crore per annum if fully implemented. There are two sets of issues here which can be examined. The first is the feasibility of the scheme in terms of the economics and the second is the logistics of implementation. Both are necessary to address to have any successful scheme.

To begin with, it must be said that any income transfer to a set of households is ideologically tuned to the concept of ‘direct benefit transfer’ (DBT) where amounts are being transferred to a Jan Dhan account. Similarly, if one is in principle okay with a universal basic income approach, then this scheme of minimum income guarantee is a modification of the same where the beneficiaries are not universal but a targeted section.

An objection normally put across for such cash transfers is that the government should focus more on creating jobs than give money. But we have seen that this does not work as in the last 20 years or so with the exception of the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) programme where unproductive work is given, people are not able to get sustainable work. By waiting for jobs to be created, the marginalised have been further aggrandized. Therefore, direct cash transfer is the way out howsoever humongous the amount involved may be.

Rahul Gandhis NYAY a test on fiscal prudence Economy must be strong enough to bear pressure of Rs 36 lakh cr

Representational image. Reuters.

Now coming to the economics of the scheme, can we bear the cost of Rs 3.6 lakh crore? If the amount is being spread over a period of time, then it can be accommodated within the fiscal parameters that are being adhered to.

This means that the number of households covered would gradually increase over say 3-5 years such that in the terminal year the amount would be Rs 3.6 lakh crore, which is similar to the Rs 75,000 cr allocation made in the present Budget for the prime minister's Rs 6,000 per family scheme.

As the Budget size keeps increasing normally by around 10 percent per annum the present size of about Rs 27.5 lakh crore would grow to close to Rs 44-45 lakh crore in five years and hence the incremental amount can absorb Rs 3.6 lakh crore.

However, if it has to be a one shot measure where all families are covered in the first year of implementation, this would be out of the realm of the Budget unless more revenue is raised which is unlikely.

The practical way of going about this exercise is to substitute this amount for schemes of the government which already exists. Hence, food subsidy, farm insurance premium, health insurance premium, MNREGA, mid-day meal scheme, pensions, etc., can be merged and cash be given to all the families. As these households are already identified, it will make the job easier.

This way, the entire amount of Rs 3.6 lakh crore would not be a top-up but a makeover of existing schemes. This has already been done in the last few years where several health schemes and those for women, girls, education etc., have been merged and presented as new programmes. The problem of doing away with these schemes is that it would make several government departments less relevant and also weaken institutions that have been created over the years.

For example using DBT for food subsidy would make the fair price shops redundant and the Food Corporation of India (FCI) relevant only for buffer stocking and not full procurement. This is a tough call that has to be taken.

Also, merging schemes will mean that the benefit from an existing one like say mid-day meal scheme will diminish as families may prefer to sue the money for some other purpose and not send children to school. Therefore, merging of schemes though useful has to be done after sufficient research to ensure that we do not close down important institutions.

The second part, which is very crucial in our context, is the logistics involved as most of the public schemes fail because of implementation issues. Identifying the beneficiaries is a challenge. This scheme is to cover all the poor and not just the farmers which was part of the budgetary announcement of the Rs 6,000 per annum scheme.

The indication given is that having less than Rs 6,000 per month income qualifies a family as being poor – which means broadly speaking Rs 200 a day which can be mapped to the MNREGA wage on an average basis. How does one get to know the income of any family especially as there are no records of the same?

When schemes are merged and the resulting funds used for the transfer purpose the identification process would be easier. For some schemes the Census data was used where the beneficiary was identified on ownership of assets or income. But what happens to families which were not covered or have entered the less than Rs 6,000 per month category subsequently.

Adverse selection cannot be ruled out here. Also, once the amount is given, it will be hard to take the beneficiaries out of the scheme even if their income improves and they are out of the poverty circle. This is a challenge which will also mean that this amount has to keep increasing as more people claim to be poor. It will lead to gaming the system with corruption becoming a part as various authorities who are entrusted with identification like say the local panchayat would hold sway over the people.

While the scheme is theoretically good, the details have to be worked out before implementation as given the amount involved and the several avenues of leakages being there, can degenerate into a scam. This is definitely a potential threat.

(The writer is chief economist, CARE ratings)

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