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India needs Rahul Gandhi's minimum income scheme to fight poverty

Economic growth will keep costs manageable while tech advances will aid implementation

| India
There is much injustice in India and a minimum income guarantee scheme called NYAY (the Hindi word for justice) is an imperative.   © Reuters

The announcement by Rahul Gandhi, president of the Indian National Congress party, of a minimum income guarantee scheme called NYAY has rightly generated considerable debate.

NYAY aims to provide a direct cash transfer of about $1000 per year to 50 million of India's poorest families. At an average family size of five, this translates to 250 million people or 20 percent of India's population in what Rahul Gandhi calls a "final assault on poverty."

Given NYAY's breathtaking scope, it is imperative to address concerns about the program. Writing in the Nikkei Asian Review (April 3), James Crabtree, an experienced India analyst, has argued that NYAY "is doomed on cost and political grounds." While Crabtree raises important questions, I disagree with some of the analysis.

For most readers of the Nikkei Asian Review, the idea of giving away $ 1000 per year to 50 million households, would most certainly bring fears of soaring fiscal deficits and inflation.

But, despite impressive growth over the last 30 years, India remains a poor country. While per capita income is about $2,000, rising unemployment and inequality are leaving millions behind. There is much injustice in India and NYAY (the Hindi word for justice) is an imperative. The debate now is about how this will be implemented and at what cost.

Crabtree starts his analysis by arguing that "Gandhi's idea shares two problems with other mooted Universal Basic Income (UBI) experiments around the world, namely that it is almost certainly fiscally and politically unworkable."

But NYAY is not a UBI scheme. It is a more restricted program, as Crabtree accepts, albeit only after bashing UBI.

Crabtree has two main objections. First, he notes that NYAY's cost is "in the region of 2% of gross domestic product." Further, he points that minimum income advocates "tend to suggest paying for their schemes by ditching other welfare programs... Yet in India's rambunctious democracy the odds that politicians would actually be able to scrap a host of popular existing handouts to poorer voters are close to zero."

Crabtree fails to mention the Congress party's perspective on implementation and costs. The Congress party proposes to spend the first year piloting NYAY, and then implementing it in phases. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) was successfully rolled out in the mid-2000s in this way. A phased rollout allows kinks to be worked out and, as GDP grows, to limit the fiscal impact in the initial years.

While NYAY's full cost is the equivalent of about 1.8% of current GDP, it is likely in practice to reach only 1.2-1.5% of GDP at its peak. Over time, as the economy grows, the fiscal impact will get smaller. We also believe NYAY will boost consumption demand among the poor and have a positive multiplier effect on the economy.

But there is still a substantial cost. We plan to have both the central government and state governments support NYAY with over half the money coming from the former. The Congress party has also proposed in its election manifesto that the government would disinvest from noncore central public sector undertakings to raise resources. Cuts in noncore subsidies and other expenditure are also on the table. The Congress party has pledged there would be no additional tax burden on the middle class. We understand that high fiscal deficits and inflation can hurt the very people we are trying to support; fiscal prudence is a high priority for us.

What of Crabtree's second concern? He argues that, "Identifying the fifth of households eligible for payments would be fraught. Poorer Indians typically do not pay tax. Identifying welfare recipients is often left to the discretion of local power-brokers, hence why such schemes are riddled with graft."

This is a genuine concern but neither new nor insurmountable. There are many government and independent data sets available to help identify beneficiaries. With advancing technology and big data, implementation of government schemes can improve.

Credit Suisse in its 2018 Global Wealth Report said that the bottom 60% in India own a mere 4.7% of the country's wealth. The richest 1% own 51.5%. Meanwhile, a 2016 report by the Asian Development Bank ranked India 24th out of 35 Asian countries in terms of spending on social protection as a share of GDP. This is morally unacceptable. Social and economic justice can no longer be held hostage to fears about cost and implementation. No Indian shall be left behind.

Salman Anees Soz, a former World Bank development specialist, is a member of the Indian National Congress. His book The Great Disappointment was published by Penguin Random House in March 2019. Views expressed are personal.

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