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25/03/2019 7:10 PM IST | Updated 27/03/2019 9:30 AM IST

Experts React To Rahul Gandhi's Minimum Income Scheme

While some called Rahul Gandhi's minimum income promise an 'irresponsible act', others said it had potential to change the mandate of the people.

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Congress President Rahul Gandhi in a file photo. 

NEW DELHI―Nearly five crore poor families will get an income support of Rs 72,000 per year to ensure that no family in India earns below Rs 12,000 per month, announced Congress President Rahul Gandhi on Monday afternoon. Gandhi was addressing a press conference in New Delhi to reveal details about his much talked about Minimum Basic Income guarantee scheme proposal. 

According to an official statement released by the Congress party on Tuesday morning, the proposal is not for a ‘top up scheme’ but “every poor family shall be rightfully entitled to ₹72000 per annum.” This means, unlike the previous idea of only paying a top amount that bridges the difference between the actual income and its difference from the sum of Rs. 12, 000, the government will pay a pre-defined amount of Rs. 72, 000 per year.

Only poor families, estimated by the Congress party to be five crores, will be eligible to receive cash transfers under this scheme. “Rs. 72, 000 would be deposited directly into the bank accounts of the women of the family,” the statement said. 

Interestingly, speaking about the scheme on Monday, Gandhi had said, “Let’s assume if your income is Rs. 6, 000, then the difference in the income from (the amount of) Rs.12,000 will be topped up.” Tuesday morning’s statement is, therefore, an important clarification as the fiscal implications of a top up vis-a-vis lump sum transfer are different.

Full details of the scheme are expected to be disclosed in the party’s manifesto that is likely to be released in the first week of April. 

HuffPost India reached out to some economists to get their opinion about Gandhi’s scheme. This is what they had to say:

1. Reetika Khera, associate professor (Economics), IIM Ahmedabad:

“There are two reasons to welcome Mr Gandhi’s announcement today — first, it initiates a (semi) serious debate on the manifesto ahead of the upcoming elections and second, it puts the focus on the disadvantaged sections of society. To the extent that it makes a commitment of 2% of GDP to the poor, the announcement is welcome.” 

In the context of a targeted programme: “The experience with targeting, not just in India, but the world over, has been disappointing. If the Congress wishes to do a targeted cash transfer programme, the only sensible option is to beef up the non-contributory social security pensions. These are given through the National Social Assistance Programme (NSAP) to the elderly, single women including widows and persons with disabilities. These are very vulnerable people, often cannot work to earn a living, and they are easy to identify.”

Problems with cash transfers: “I have reservations about cash transfers. 
The main problem is that its value erodes with time - for instance, the 
central government’s contribution to the elderly pension given through 
the NSAP has been stuck at Rs. 200 per person per month since 2006.  
When the government indexes these transfers to inflation, it does so 
inadequately. Last year or so in the name of indexation, in Jharkhand 
the NREGA wage was increased by Re 1/day only!”

Some other issues: “There is another problem with what Mr. Gandhi says: he says that we will bridge the difference between your actual income and the minimum income level (Rs 12,000) - but how will they know what my income is? What stops me from lying about it

If there has to be an income transfer, targeted ensures equity, but raises implementability issues (how do you identify) unless you do what we’re proposing. It may yet be true that the same 2% of GDP (which is roughly what this will cost), might be better spent on primary healthcare, rather than a cash transfer.”

2. Laveesh Bhandari, economist and director of Indicus Foundation:

“This is a completely irresponsible act by the Congress party. It is only going to worsen the whole political debate. The only way to identify income is by asking people or telling some government servant to do that. Obviously, there will be under reporting and corruption. It will lead to stresses in urban and local context―wherever it is implemented.

Even if somehow they are able to identify, there will be very serious movement away from investment towards consumption. Either you will have to reduce investment and reallocate funds towards consumption and spend much more and create inflation. It will harm the poor and create inflation.”

3. Dipa Sinha, assistant professor, Ambedkar university: 

“For India, the priority should be universal provision of basic services like health and education. The money would be better spent in public services. There can’t be anything that takes away resources from these sectors.

In today’s announcement, they said they are going to adhere to fiscal standards. So we need to know where is the money going to go away from? Also, identification of income is an impossible task. There are exclusion errors. 

If there is any cash transfer scheme, it should be in the case of schemes for socially vulnerable groups like the aged, disabled, single women and maternity entitlements in the informal sector. Schemes for these groups are presently in the form of a cash transfer and need to be topped up.” 

4. Lekha Chakraborty, associate professor, National Institute of Public Finance and Policy:

“As the government’s ‘employer of last resort’ policies failed, the narrative has now shifted to the government providing ‘guaranteed income’ to the poor. This basic income announcement can be a real game-changer in the forthcoming elections if this is pitched as providing enabling economic support to poor women and men for their “participation” in the unpaid care economy work ( where they are not remunerated) and giving them social justice and dignity through basic income transfers. This will turnaround the mandate in the elections, if the policy is designed with ‘autonomous individuals’ (and not households) as the unit of analysis. The fiscal implications need to be worked out carefully and a relook is needed at the numbers; how they arrived at them.”