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Monday, December 06, 2021

Congress’s concept of minimum income guarantee is intellectually embarrassing and deeply flawed

Very likely, and I am speculating, it was because of the opposition of Congress’s economic consultants that there were glaring and obvious contradictions in the Congress’s Minimum Income Guarantee (MIG) income, and the contradiction between survival and poverty line income.

Written by Surjit S Bhalla |
Updated: March 28, 2019 10:17:57 am
Congress’s concept of minimum income guarantee is intellectually embarrassing and deeply flawed The first fake news element within PAP is in its assertion that prominent economic experts were involved in arriving at the figure of Rs 72,000 a year or Rs 6,000 a month as the minimum income line. (Illustration: CR Sasikumar)

For two and a half days, the media was full of discussion, and interpretation, of the Congress proposal on alleviating poverty (hereafter pap or PAP). In addition, the Congress, and its president, Rahul Gandhi, has not been shy of invoking big names in his advertisement of support for, and planning of, PAP. Former RBI governor Raghuram Rajan has been prominently mentioned as a major consultant; Economist Thomas Piketty has admitted to having been consulted, though Nobel laureate Angus Deaton has denied as having been involved in any way whatsoever. In addition, leading MIT economist Abhijit Banerjee has admitted that he has been consulted by the Congress. According to a report in Business Standard (January 27): “A committee of party leaders, which included Manmohan Singh and P Chidambaram, has calculated the basic living income each family needs to survive as Rs 12,000 per month.”

It is quite clear that the Congress believes that PAP is unique, innovative, and a game-changer. According to Chidambaram’s press conference, the total expenditure involved in implementing PAP will not exceed 2 per cent of the GDP. Lately, there has been intense speculation, and debate, in the media about whether the programme was a top-up proposal or a straightforward grant of Rs 72,000 per family per year or Rs 6,000 per month (pm). Here is the first bit of confusion in the PAP proposal. The Congress believes that Rs 12,000 a month (or Rs 144,000 a year) is the survival income needed but is promising to give only half of that as its income guarantee. But wait. There is an explanation for how Rs 6,000 per month is the “survival” income needed per family. “Survival” income is nothing but the poverty line income!

A top-up proposal would mean that the UPA, if it returns to office, would help lift every family residing in the bottom 20 per cent, to reach an income level of Rs 6,000 pm. Hence, if a family earned Rs 4,000 pm, the government would transfer Rs 2,000 every month into the bank account of the designated woman in the family. Chidambaram was emphatic in his press conference that the Congress would follow the Modi government’s policy of transferring money into a woman’s account. According to this first PAP plan (PAP1), if a family earned Rs 72,001 or more a year, there would be a zero-rupee transfer. Incidentally, PAP1 was revealed to the world by none other than Rahul Gandhi himself.

Then Congress spokesperson, Randeep Surjewala, contradicted his party chief. He said that PAP1 was not a top-up but a straightforward grant of Rs 72,000 to every family whose income fell below Rs 72,000 a year. Let us call this proposal PAP2. While Surjewala did not say so, a clear implication of PAP2 is that his leader could not tell the difference between a top-up and a grant. I don’t believe that Rahul Gandhi could not understand the difference. I believe it was a straightforward case of confusion in the Congress about which proposal to advocate, and confusion between poverty line income of Rs 6,000 per month and survival income of Rs 12,000 per month.

I am going to painstakingly document the intellectual and policy folly of both PAP1 and PAP2. I hope to make clear why I think none of the economic luminaries mentioned above will ever admit to supporting either PAP1 or PAP2. Very likely, and I am speculating, it was because of the opposition of Congress’s economic consultants that there were glaring and obvious contradictions in the Congress’s Minimum Income Guarantee (MIG) income, and the contradiction between survival and poverty line income.

I have written several articles over the last few months documenting the existence, and prominence, of the fake news (especially fake economic news) campaign of the Congress. In my book, Citizen Raj-Elections 1952-2019 (to be released in mid-April 2019), I document how fake economic news has been in operation since January 2015, barely seven months after Narendra Modi won a historic election. Let me now document all my assertions so that there is no doubt that whatever I say is backed by hard numbers and logic. You can easily decide whether my assessment is a jumla upon jumla, or hard facts versus jumla. I am afraid this task will require two full articles, but I promise to keep you hooked!

The first fake news element within PAP is in its assertion that prominent economic experts were involved in arriving at the figure of Rs 72,000 a year or Rs 6,000 a month as the minimum income line. Because Rs 6,000 a month is exactly an update of the Tendulkar poverty line, and this official minimum income line has been in existence for more than a decade. This is shown below at an all-India level. Arvind Virmani, former Chief Economic Adviser, Government of India and me are working on a more time-consuming project of estimating the Tendulkar poverty line for each urban and rural area of the country.

Most readers can skim or skip the next two paragraphs. They are provided as evidence that the Congress poverty line is nothing but the official poverty line in India. The Tendulkar poverty line in 2011-12 for rural areas was Rs 853 per capita per month (pcpm). For urban areas, the national average was Rs 1,000 pcpm. Rural CPI average for July 2011 to June 2012 (the NSSO months) registered a level of 95.0; urban CPI registered 95.7; for 2017-18 (same months), the corresponding levels are 138.6 and 133.7. For both 2018-19 and 2019-20, an average inflation of 4 per cent is assumed. This yields rural and urban CPI levels of 150 and 145 in 2019-20. The corresponding 2019-20 Tendulkar poverty line is therefore Rs 1,347 pcpm (rural) and Rs 1,515 pcpm (urban).

It remains to determine the urbanisation rate in 2019-20. Leaked PLFS reports suggest that India had an urbanisation rate of only 29.3 per cent in 2017-18, and even lower than that observed in 2011-12! One of the many problems with the PLFS data that has gone unremarked by most commentators is the low rate of urbanisation observed in 2017-18. If this urbanisation rate is taken as accurate, then the national Tendulkar line in 2019-20 is Rs 1,396 per person per month. Accepting this figure yields an average family size of 4.3 for India (6,000 divided by 1,396). While this seems low, it apparently is identical to the PLFS estimate of family size in rural India, a poverty benchmark region used by international agencies like the World Bank. Hence, what the Congress has proposed is a transfer of poverty line income to each family — and half of survival income!

Part II of the PAP jumla will document how a top-up scheme in 2019-20 will likely involve an additional expenditure level of less than 0.2 per cent of annual GDP and how, in 2019-20, the Tendulkar poverty level in India will likely be less than 5 per cent of the population, and how the grant proposal will benefit 20 per cent of the population and alienate those in the next 30 per cent (21 per cent to 50 per cent). It doesn’t seem as if this is an intelligent election strategy. But who am I to comment? I supported Manmohan Singh as prime minister in the 2009 election!

This article first appeared in the print edition on March 28, 2019 under the title ‘In the name of the poor’. The writer is Contributing Editor, Indian Express and Consultant, Network 18.

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