Rahul Gandhi’s minimum income is either too expensive or unimplementable; and will he abolish subsidies? – The Financial Express

On the face of things, Congress president Rahul Gandhi’s election promise to give each of India’s poorest 20% families Rs 6,000 per month — that is, 12 times what prime minister Narendra Modi has promised to give poor farmers — is an astute political move and, more important, represents a quantum leap in India’s thinking on subsidies.

At one stretch, if you will, Gandhi’s modified Universal Basic Income (UBI) appears to be promising an end to the corruption-ridden subsidy regime India has run for the last 70 years, and, more important, India will have zero poverty once the scheme is implemented.

An obvious question, that arose even when Modi was promising the farmers Rs 6,000 per year, is how much this is going to cost and how this is to be funded. Simple arithmetic tells you the scheme will cost Rs 360,000 crore, an amount that is far greater than what the central government spends on all manner of subsidies, from food to electricity, fertilisers, water, scholarships, rations, etc.

As such, the scheme is unaffordable, and seems like the farm loan waivers that various political parties have been promising over the past few elections, including one Parliamentary one.

Though Rahul Gandhi has not said so, the fact that the Congress has said the scheme will be fiscally responsible, suggests that all other subsidies will be removed. So, there will be no fertilizer subsidies, no power subsidies, no subsidized rations, nothing.

All of this will be replaced by a cash transfer and the poor– or the relatively poorer segment of the population — will be free to spend their money on what they want, and because everything will be paid for at market prices, this won’t distort the market either.

The other possibility is the scheme, like Modi’s Ayushman Bharat medical insurance once, will be jointly funded along with the states; the states spend roughly the same amount that the centre does on various welfare schemes.

What complicates matters is the possibility that the Congress party is not planning a flat Rs 72,000 per poor family per year, but is planning a top-up scheme to supplement a family’s income. So, a family that earns Rs 36,000 will get another Rs 36,000 while a family that earns Rs 70,000 will get just Rs 2,000.

While this will make the scheme more affordable, it makes it almost unimplementable, and makes it very corruption-prone. Such a scheme, that sounds ideal from the point of view of a theoretical economist, requires every household to correctly declare its income and take only what is due to it. That’s an invitation to large-scale corruption.

Apart from this very obvious lacuna, what is important is what political parties are planning for the rest of India beyond the bottom-most 20%. There is no logical reason to give subsidies to the better-off, but this has always been obvious and, yet, for the last 70 years, most subsidies have been grabbed by the more wealthy. Indeed, under Sonia Gandhi’s influence, the UPA came up with the National Food security Act that gave two thirds of Indians a 90-95% subsidy on purchase of 5kg per head of rice and wheat per month.

Is Rahul Gandhi saying he is willing to give up subsidies to everyone but the bottom 20%? Indeed, this is also why, when Modi announced his farm-income scheme, he said this would be in addition to existing subsidies, not something to supplant them. In other words, right now, the Congress party’s promise is nothing but an election stunt, aimed at getting more votes, and it remains to be seen if the BJP will try and better this.

A sweeping reform, which is what a modified UBI is, requires a commitment to eliminate all subsidies to anyone but the deserving.

via Rahul Gandhi’s minimum income is either too expensive or unimplementable; and will he abolish subsidies? – The Financial Express

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