The world’s largest democracy is days away from its national elections. Prime Minister Narendra Modi’s re-election bid seems stronger than ever before. The attacks of main opposition Congress party on issues like unemployment, communal polarisation, and favoritism in a multi-billion fighter jet deal have been largely blunted since February end when India launched an air strike against Pakistan based terrorists.
While the popularity of PM Modi remains high after 5 years, India’s opposition continues to struggle. India’s young and tech-savvy voters have not yet forgotten the corruption of Congress-led governments that have mostly ruled the country since its independence in 1947. Majority Indian voters increasingly see Congress weak on national security issues.
It was the promise of waiving the farm loans that helped Congress party clinch three key states from Modi led BJP last December. Unsurprisingly, its leader Rahul Gandhi has now charged a direct attack by promising basic income security to the poorest.
Described as a “final assault on poverty”, he has promised up to ₹6,000 (€75) per month for every family earning less than ₹12,000 (€150) a month. The scheme termed as Nyay (Hindi word for justice) could benefit around 50 million households (20 percent of the total population) qualifying it as the world’s largest minimum income scheme. Such a scheme could also cost anything over €45 billion to the world’s fastest-growing major economy running a fiscal deficit of 3.4 percent of national GDP.
But can such a scheme work in India? Is Rahul Gandhi’s Minimum Income Scheme even fiscally doable?
Garibi Hatao 2.0
In 1971, Prime Minister Indira Gandhi (grandmother of Rahul Gandhi) won power on the slogan of ‘Garibi Hatao’ (Hindi phrase for “Remove Poverty”). She won the election but poverty and unemployment remained largely unchallenged.
India opened its economy in the 1990s and non-Congress governments began grasping power in states across India. They too failed to cut down on poverty despite launching an array of populist schemes. India’s largely agricultural economy remained far too dependent on monsoon and less exposed to the world markets.
India’s expanding middle class is mostly dominated by a lower middle class that struggles to make ends meet. Alongside the ‘job crisis’, poor wages is the biggest hurdle to India’s effort of raising its per capita income. Less than a fifth of the population is covered by some form of social protection.
While there is no denying that extreme poverty has reduced in India, poverty remains a massive challenge in over-populated India. As per the 2018 global Multidimensional Poverty Index, the incidence of multidimensional poverty almost halved between 2005/6 and 2015/16. The world poverty clock made the claim that Nigeria has now replaced India as home to the largest number of poor. Yet, India was ranked 103rd out of 119 qualifying countries in the latest Global Hunger Index.
The rapidly growing income and wealth inequality between urban and rural India has made it worse. In 2005, the Congress party had launched a controversial scheme called MNREGA that guaranteed ‘right to work’ for rural unskilled labor. While the scheme created petty employment, PM Modi termed the scheme as “monument to 60 years of failure” owing to its wastefulness and leakages. Daily wages in urban areas remain more than twice as high as wages in rural areas.
Betting on the poor
Narendra Modi government launched various pro-poor schemes in the last 5 years. It has expanded public investment in healthcare and increased the banking penetration rate among rural poor. The government recently introduced a 10 percent reservation for “Economically Weaker Section” extending to all castes and religions. In its last budget before elections, PM Modi introduced a new scheme for small farmers that shall provide ₹6,000 (€75) per year as minimum income support.
For India’s millionaire lawmakers, poor voters are key to winning elections. Almost all of them work in the agricultural and informal sector. 80 percent of India’s poor live in rural areas. It is this section of the poor population in rural areas that are the target audience of Rahul Gandhi’s minimum income scheme. The question of welfare access among rural poor gains further relevance since poor in India vote in large numbers dwarfing their urban counterparts. Welfare populism has become politically inevitable.
The long road to welfare
As for the income guarantee scheme itself, the idea is not bad.
French economist Thomas Piketty (celebrated for his work on inequality) and former RBI governor Raghuram Rajan are known to have advised the Congress party on this minimum income scheme. This is quite a joke of sorts considering the fact that inequality in India vastly expanded under the decade long Congress rule between 2004–14 when the income of share of top 1 percent crossed that of the bottom 50 percent.
India has thousands of overlapping government schemes for millions of its poor. Many struggles to deliver on the ground. The lack of awareness and multiplicity of institutions delays the progress. An income guarantee scheme that puts the money right in the bank account is a doable idea.
In the last 5 years, Modi government has prepared the ground to implement a minimum guarantee scheme. The government has focused on improving efficiency in the welfare scheme by implementing a universal biometric ‘Aadhar’ card system and achieving direct benefit transfer for government subsidies. Banking coverage now reaches 80 percent of the Indian population and 23 percent of these accounts receive direct benefit transfers.
As for the fiscal doability of the scheme. India currently spends more than 8 percent of its GDP just on government salaries. A major chunk is spent on palatial accommodation and wasteful expenditures of its senior bureaucracy. Rationalizing this and shutting down inefficient schemes could fund the income guarantee scheme. A re-introduction of inheritance tax (discontinued since 1986) and fostering tax compliance are other options in the toolkit.
Not just the money
There are some key problems to ever implement such an initiative.
Corruption among the state governments is the major challenge that makes any minimum guarantee scheme unsustainable in the long-run. The success of nationwide schemes largely rests on the cooperation between union and state governments. Around 60 percent of India’s poor live in 7 states that lack the financial muscles to pull through such schemes.
Another issue shall be identifying the target households and ensuring the money goes to those who need it most. To what extent can a minimum income remain unconditional? The impact on the labor supply could also be disastrous for some states.
India’s opposition is attempting to thwart neoliberal “Modinomics” with his own version of economic populism. It won’t be easy for Rahul Gandhi, whose father, grandmother and great-grandfather were all prime ministers, to make Indians convince on this populist ploy in the next three weeks before the voting begins.
Until then, Modi’s stellar record on clean governance wrapped around extreme nationalism might prove just enough to get him re-elected.
