Congress President Rahul Gandhi has raised the stakes for the upcoming Lok Sabha election 2019 with his promise of Rs 72,000 assistance each for as many as 5 crore poor families in India, in what could make the fiscal deficit run wild and worsen inequality.
The announcement is getting mixed reactions from various experts. While some expect it could help in uplifting people from the below poverty line, there are some who regard it as completely absurd as it would widen the fiscal deficit and believe it may instead end up increasing inequality.
Rahul Gandhi said that if voted to power, his Congress party government would benefit 5 crore families, or 25 crore people, by providing them Rs 72,000 per annum through his income guarantee scheme named Nyuntam Aay Yojana (NYAY), earlier announced in January. The announcement comes just days before the general elections.
In scathing remarks Surjit Bhalla, former member of Prime Minister Narendra Modi’s Economic Advisory Council, has called the idea fundamentally flawed, explaining how it will result in increasing inequality.
“Note that the 21st ptile (person) to the 100th richest persons get zilch extra income. Using the 2011 NSSO distribution and inflating per household by 11 per cent a year, one obtains the result that the incomes of the bottom 20 per cent go up, but the new 20th person now has the same income as the old 55th person,” Surjit Bhalla tweeted. With this, Rahul Gandhi can make the bottom 20 per cent happy only at the cost of making 35 per cent unhappy, he wrote.
However, India would need to raise its income significantly in order to fund this scheme, or else, it runs the risk of letting loose fiscal deficit. “The scheme costing 3.6 lakh crore to the exchequer would account for around 1.8 per cent of GDP and unless tax and non-tax revenues are raised by an equal amount, it would slip the fiscal deficit target by the same margin,” EY India’s Srivastava said.
The government must address the structural problems of the agricultural sector, Srivastava said, speaking about the other alternatives which are economically more efficient to address the rural distress. There needs to be created a genuine all-India market for the farm sector compared to the present condition of highly fragmented markets, he said. He further suggested to encourage private sector investments in the sector.
“Whenever any section of society is under distress, it’s the government’s responsibility to provide support to them. However, since the subsidies and income support can not co-exist, where the money will come from needs to watch for,” said an economist who does not wish to reveal his name to Financial Express Online.