MARCH 27, 2019

By TIOL Edit Team

FISCAL concerns are back on the national agenda with political parties gearing up to pack their manifestos with dole-outs. These can strain fiscal health of the Centre and the States, forcing them to borrow more or/and tax more.

Congress Party has fired a new salvo - Minimum Income Guarantee (MIG) scheme for people below the poverty line (BPL). All families with monthly income of less than Rs 12,000 per month would be covered by scheme abbreviated in Hindi as NYAY (justice) for poor.

Congress Government, if formed, would provide Rs 72,000 to every BPL family.

It would deposit Rs 6000 per month in the bank account of woman member of BPL family.

Describing NYAY as "ground breaking idea", Congress President Rahul Gandhi said: "The Entire calculations have been done. The fiscal repercussions of this have been analyzed.This money is perfectly available. This scheme is perfectly doable. We are going to deliver this scheme".

The scheme is supposed to benefit 5 crore BPL families or 25 crore persons. One has to keep fingers crossed as the snags always lie in the detail and in implementation of schemes.

Mr. Gandhi had declared his intent to announce MIG in January 2019. He had also declared party's proposal to write-off farm loans if voted to power. The combined effect of the two proposed initiatives on fiscal deficit can be alarming.

Congress' grandstanding on these two proposals prompted Modi Government to unveil PradhanMantriKisanSammanNidhi (PM-KISAN) during February 2019. Under this, Rs 6000/year would be deposited in three installments in bank accounts of small and marginal farmers with land holding of up to 2 hectares. The annual expenditure on this scheme is estimated at Rs 75,000 crore.

Modi Govt has shown its intent to hike cash dole-out under PM-KISAN in the coming years. BJP might try to offset the impact of NYAY with some proposed scheme to offer cash directly into potential beneficiaries' accounts. Cash rings in better to voters than benefits delivered as kind under different schemes. The only exception is food subsidy.

BPL families largely don't want food subsidy as cash deposit in their accounts. They want its continuance as supply of highly subsidized food grain.

The picture about new welfare schemes or amplification of existing ones would be known after Congress & BJP release their manifestos for LokSabha elections.

And the fiscal impact of the manifestos would be known only after voters decide which manifesto has more tempting and credible goodies.

Whatever be the poll outcome, there is no escape from MIG or universal basic income (UBI) that Modi Government toyed with. Whatever the name, the potential beneficiaries are the same – BPL families.

In September 2017, International Monetary Fund (IMF) commended UBI idea for India mooted in Finance Ministry's pre-budget Economic Survey for 2016-17.

In its Fiscal Monitor report,IMF observed: "The micro-simulation results indicate that a UBI would outperform the PDS and energy subsidies along three key dimensions".

These are improved Coverage of potential beneficiaries, progressivity and Generosity. It explained "Replacing PDS subsidies and implicit energy subsidies with a UBI would result in a substantial increase in the generosity of benefits received by lower-income groups".

UBI/MIG can't be and should not be an additional dole-out. It should be given in lieu of food and energy subsidies. If more subsidies could be merged into it, the better it would be from the standpoint of cost of administration and prevention of leakages. The subsidies delivered via NGOs are prone to maximum leakages. They should certainly be scrapped or merged with MIG/UBI.

The new Government must start zero-base budgeting of all subsidies – cash, kind, direct and indirect ones to develop sound architecture for MIG which should be inflation indexed. Such an exercise would help check bewildering variety of benefits. Many of these exist on the paper or are prone to leakages.

Apart from UIB for BPL families, the Government can have a separate one for farmers with a foolproof mechanism to avoid grant of double benefit to any family. The scheme for farmers should be framed in lieu of fertilizer subsidy & other input subsidies.

Ideally, Central and State subsidies for agriculture should be pooled into one universal income scheme for farmers. PM-KISAN duplicates similar schemes launched by few states such as Telangana. Political maturity by both PM and Chief Ministers can go a long way in making delivery of benefits focused, effective and accountable.

The Centre should thus convene meeting of governing council of NITI Aayog to arrive a consensus to have unified income schemes in which neither name of PM or CM should appear. There are better names for schemes.

Pooling of central and state subsidies into two or more income schemes would help both the beneficiaries and the Government. The beneficiaries can focus to save time, focus on work and make judicious use of cash subsidies. The Government can save thousands of crores, perhaps a few lakh crores, every year by reducing cost of administration and leakage of benefits.

Cooperative federalism in management of subsidies would facilitate coordination in management of combined fiscal deficit of the country. This is what global financial institutions and credit rating agencies look at.

We expect Finance Commission to give its opinion and recommendations on rationalization of central and state subsidies and their pooling into joint income scheme for BPL and farmers.

We urge the Commission to put a freeze on launch of subsidy-loaded new welfare schemes. Let the Government focus on creation of building affordable, good schools, hospitals, roads, railways and other infrastructure universally accessible to all.