In the run-up to the general election, India’s leading political parties, long used to hectoring states on their populist schemes and freebies, are engaged in a competitive populism of their own. On Monday, Congress president Rahul Gandhi announced in Chhattisgarh that his party would provide a minimum income guarantee for the poor in all states if is voted to power. He also indicated that the proposed guarantee, which envisages the direct transfer of funds to the bank accounts of the poor, would be one of its kind in the world. This is evidently an attempt by the Congress to counter and combat the ruling BJP’s brand of social welfarism — recent reports have pointed to an Universal Basic Income scheme in-the-making, to be unveiled perhaps in the interim budget later this week.
Gandhi also highlighted and harped on the divide between India’s rich and poor, or India vs Bharat. This narrative may or may not make for good politics but it certainly rests on a dodgy economics. No doubt, the UBI proposal which gained currency in India after former Chief Economic Advisor Arvind Subramanian wrote on it in the 2017 Economic Survey, has appeal — with its objective of ensuring social justice and dignity, reducing poverty and increasing administrative efficiency. But there are many questions when it comes to implementing such a scheme, even if it is not universal and even if its sweep is restricted or is made conditional in nature, going by the trials done by the government in Finland, for instance. There are multiple challenges, starting with the costs of funding such a scheme — with the most conservative estimates putting the tab for even a targeted minimum income guarantee at close to or over 2 per cent of the GDP — defining poverty and determining an appropriate threshold, and identifying the beneficiaries besides the risk of moral hazard.
Such a scheme may only make sense when the state is able to replace a wide range of other welfare schemes, including the MGNREGA, with the UBI. In India’s political economy, however, such a move would be fraught with risk. The current economic narrative — coming as it does after loan waivers announced by many states — should be a reason to worry, considering that the signs of an economic recovery are still fragile after the twin disruptions of the note ban and GST. It could inaugurate a race to the bottom which poses a grave threat to fiscal and financial stability. What should also be a matter of concern is the sweeping hostility to business and entrepreneurship manifest in the remarks of the Congress president. He must know that only a tide of growth can lift all boats.