Mixed views on Congress’ basic income plan

The brains behind the “minimum income guarantee scheme”, that was recently promised by Congress president Rahul Gandhi if his party comes to power, have said that implementing the scheme is very much possible and the country is now ready to move to the politics of income and wealth distribution.

French economist Thomas Piketty, who was approached by the party for his views on the feasibility of the idea and how to implement it, before Gandhi announced it during his Chhattisgarh tour, told The Sunday Guardian that the scheme is very much implementable. “We have been exchanging (notes) with Congress together with Abhijit Banerjee over the past few days, about how much it would cost and how to implement this. My view is that a minimum high income scheme would be highly welcome. India’s poor have been badly treated by the Indian elite. It is high time to move from the politics of caste conflict to the politics of income and wealth redistribution,” he said. Piketty, who has authored the best-selling book “Capital in the Twenty-first Century”, that calls for redistribution of wealth through a progressive global tax on wealth, is working with Indian-american economist Abhijit Banerjee, who is a professor of Economics at the Massachusetts Institute of Technology (MIT), on how to implement the scheme and its impact.

Interacting with this newspaper, Prof Banerjee said that the minimum income guarantee or the universal basic income (UBI) scheme is not a dole as some critics have called it. “We are now a lower middle country and we can afford to not have people who are so poor that they have to skip meals sometimes or be so desperate for money that they are willing to jobs like cleaning the sewers manually. There is also evidence that for very poor people, getting some relief makes them more likely to invest in the health and education of their children. So may be in the long run, this is even good for productivity,” he explained. According to him, the programme is very much implementable. “I have always argued that we are under-taxed as an economy. We should tax the rich more and redistribute more. We have tons of money, as economist Pranab Bardhan has argued, that ends up as subsidies to the rich – investment credits, tax let-offs, taxes not paid etc. I think if we have to worry about something, we should worry about the implementation of such a scheme, since identifying who the right beneficiaries will be extremely tricky. This is the main case for UBI in India,” he added.

However, other economists, closer home, have said that this idea is not going to benefit the needy in the long run. Commenting on UBI, S.P. Sharma, Chief Economist, PHD Chamber of Commerce and Industry, said that it is not going to pay dividends in the longer period. “This can be a feasible idea in the short run but not in long run. We need strong long-term reforms for better results,” he added.

In fact, Arvind Virmani, who was the Chief Economic Adviser from 2007 to 2009 during UPA regime, has also said that UBI is not a good idea and has been quoted in the media stating that UBI is fiscally “nonviable” if it ensures a reasonable amount of income to the needy.

Speaking to The Sunday Guardian, Niranjan Sahoo, a Senior Fellow with Observer Research Foundation (ORF), said that the bigger question is the fiscal capacity to implement such gargantuan scheme. “Going by estimates, India would require Rs 2.64 lakh crore (at 2019-20 price) or 1.3% of the GDP to cover 75% of the rural population,” he said.

“With India already crossing the red lines of fiscal deficit, where from the money would come for such a scheme? Further, UBI has potentials to create labour market distortions. Such guaranteed income without any regular work would affect labour mobility as seen in the case of MGNREGS, which in many ways can push the wages impacting farm sector and even factory works,” he explained. “Finally, given that these transfers are unconditional, it is extremely difficult to ensure that the additional income will be spent by the recipients on health, education and other human development needs. As the experience from other cash transfer programmes shows, additional income may be spent on tobacco, alcohol and other such conspicuous consumption,” Sahoo added. Though certain media reports have suggested that British Nobel laureate Angus Deaton is also working with Congress on this project, he has dubbed the news as fake. He told this correspondent that he has not interacted with anyone from the party over this issue. Professor Banerjee, too, confirmed that Deaton is not working with them on this project. Praveen Chakravarty, the head of Congress’ data analytics department, had first approached Piketty and Banerjee seeking their advice to assess what it would take to the programme.