Class 12
Indian Economics
Current Event
Launch of Minimum Income Scheme by congress president -Rahul Ghandhi
A Debate - For and Against
Chapter Links - Indian Economy from 1950-1990
- Congress president Rahul Gandhi has proposed an income distribution scheme, Nyuntam Aay Yojana (NYAY), literally minimum income scheme, that could spiral over time, through competitive populism of political parties, into yet another fiscal and economic crisis
- What happened in 1980 can be happened again - A look at the crisis of 1980
- Fiscal deterioration was allowed to proceed apace. As a consequence, the current account deficit continued to worsen and domestic and foreign debt continued to increase at a dangerous rate. during 1980
- Even a strictly temporary shock like the Gulf War was enough to trigger a full-scale crisis.’
- The political populism of the 1980 contributed to a sharp increase in government spending on a widening range of subsidies. The share of fiscal deficit in national income shot up from an average of 6.3% in the Sixth Plan period of 1980-85 to 8.2% in the Seventh Plan period of 1985-90
- . To make matters worse, the internal debt of the government also went up from 36% of GDP at the end of 1980-81to 54% of GDP at the end of 1990-91. Interest payments by the government doubled during this decade, with their share in GDP going up from an annual average of 2.6% in 1980-85 to 3.9% in 1985-90.
If NYAY were to substitute for most existing subsidies, GoI may be able to fund it. But Congress has not named a single subsidy it would be willing to eliminate.
What should be truly worrying is that Rajiv Gandhi’s fiscal adventurism of the 1980s was at a time when his government commanded an overwhelming majority in the Lok Sabha, with over 400 MPs. Given the kind of coalition that Rahul Gandhi may lead if he even manages to get half that number into the Lok Sabha, the fiscal pressures on GoI would only increase, raising danger signals for the economy.
For the scheme
The economic idea of a basic income is not new. Neither is the idea of cash transfers. Back in 1968, 1,200 eminent economists wrote to then-US president Richard Nixon to introduce a basic minimum income (BMI) for the poor. In the Indian context, former chief economic adviser Arvind Subramanian proposed this idea in the 2017 Economic Survey. The chapter on BMI is perhaps the most comprehensive and detailed proposal that argued how India was ready for BMI.
Trickle-down benefits of GDP growth have eluded the poorest sections of society. Inequality has widened sharply.
Advances in technology and automation carry the risk of further exacerbating this gap. It is, therefore, imperative in any just society to target the weakest sections directly with a policy intervention to ensure a certain basic minimum level of dignity and self-respect for every family. Thus, the case for a direct cash transfer. A direct cash transfer not only provides income support and a safety net to the most-needy, but it also provides economic freedom and choice in how they use the cash.
NYAY intends to provide a flat, uniform amount of Rs 6,000 a month to the poorest 50 million Indian families.
This entails a peak cost of Rs 3.6 lakh crore — 1.8% of India’s GDP today. A federal scheme, it will be piloted first and rolled out in phases in the first two years, with the involvement of states. Depending on India’s nominal GDP growth, at its peak, NYAY will cost between 1.2% and 1.5%.
When political parties in India today can identify their supporters in every household using big-data techniques, it shouldn’t be as hard to identify the poorest 50 million households in India as it’s made out to be
On a side note, when finance minister Arun Jaitley, in a press conference on February 1, 2018, with his entire economic team in tow, announced the Ayushman Bharat scheme to provide health insurance to 100 million poorest families, there was neither any question nor any explanation about identifying
In 1947, with 70% of its population in poverty and the adoption of a universal adult franchise at birth, India defied conventional global wisdom to not just survive as a nation but prosper. India’s poverty rate is now down to 20%. It is now time again to launch that final assault on wiping out the last remains of poverty with a similar bold and ambitious programme that may seem to defy convention through NYAY.
