THERE IS UNPLEASANT fiscal math to be faced when political parties go into ‘scheme mode’ on the eve of elections. Very often no one bothers to look at the long-term consequences of economic populism. What is dished out instead is a bitter clash of ‘my scheme versus your scheme’. Something similar was at hand when the Congress president announced his ambitious social safety net plan, evocatively titled as ‘NYAY’ (Nyuntam Aay Yojana)—justice— but in reality, a Hindi acronym for a minimum income guarantee scheme. Announced just days ago, the scheme has led to a bitter exchange of words between the ruling Bharatiya Janata Party (BJP) and the Congress.
The detailed description and design of the scheme is not clear yet. But the available sketch is based on giving the poorest 20 per cent of Indian households a minimum income of Rs 6,000 per month or Rs 72,000 every year. In concrete numbers this means some 50 million households or 250 million individuals—one- fourth of a billion—will be brought under the purview of NYAY. If it sees daylight, it will be the second major scheme under the Congress’ aegis, Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) being the first.
It is another matter that both schemes are subject to fiscally ruinous math. MGNREGA has proved politically impossible to roll back. So will NYAY, if it is rolled out. The numbers are clear. At Rs 72,000 per annum for 50 million households, the price tag is a gigantic Rs 3.6 lakh crore. This large, potential, expenditure has been justified in certain quarters as acceptable. The claim runs something like this: the sum is less than 2 per cent of India’s Gross Domestic Product (GDP) and for a country that is growing at roughly 7 per cent every year surely the demands of justice for the poorest of the poor warrant this expenditure.
The trouble is that governments do not function on the basis of expenditures as a percentage of GDP but in terms of percentage of tax revenue. Viewed thus, NYAY will be expensive: roughly 20 per cent of the Union Government’s estimated tax revenue for 2019-2020. To give one topical comparison, NYAY alone will dwarf the country’s estimated defence expenditure.
The scheme mania has now acquired almost ruinous proportions. Along with MGNREGA, NYAY will add up to Rs 4.2 lakh crore (based on 2019-2020 Budget estimates). If one adds major subsidies—fertiliser, food and petroleum— the sum then is a gigantic Rs 7.16 lakh crore. This is close to 41 per cent of tax revenue (2019-2020 figures).
Such comparisons yield howls of protests from those believing in the ideology of ‘social justice’ which is nothing more than the intellectual class that justifies the spend-and- move-on mode of government functioning. But that is not how the protests are couched. The reasoning is superficially based on ‘economics’: Welfare schemes for the poor cannot be clubbed with subsidies that include a large number of people from the pampered class. Again, this is superficially true: the middle class receives subsidies that it has no business having. But the objection against clubbing all these expenditures is disposed of easily: all of them represent consumption expenditures that are of a private nature but are in reality provided for by the government. In any theory of government, except communism, such expenditures should not be the concern of the government except, perhaps, for the bottom decile of the population in terms of per capita consumption. In simple words, the poorest of the poor.
MGNREGA has proved politically impossible to roll back. So will NYAY, if it is rolled out. The numbers are clear. At Rs 72,000 per annum for 50 million households, the price tag is a gigantic Rs 3.6 lakh crore
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What these rising expenditures show are three very disturbing trends that will ultimately prove deleterious for Indian politics and its economy. One, as a country goes on reducing poverty, the number of people who need such support from the government should go down. In India, the opposite trend is observed: even as poverty (based on the World Bank’s $ 1.90 per day yardstick in 2011 Purchasing Power Parity terms) went down from 31.1 per cent in 2009 to 21.2 per cent of the population, the number of people enrolled under MGNREGA and possibly NYAY in future will exceed a quarter of India’s population. How does one explain this curious situation? Are the numbers questionable? Or has there been some other error in measurement? One can, of course, go on crafting ever more questions or doubts. But there is a simpler explanation: there is a ‘poverty industry’here that continues to dish the story that India remains an essentially poor country where the government needs to keep spending rising sums to tackle poverty. Plus ça change, plus c’est la même chose. Period.
Two, these expenditures have fundamentally altered India’s political economy. At one time government was supposed to provide public goods like defence, police and judicial services and other services of the state. Later this was extended to quasi-public goods such as subsidised healthcare and school education. Finally, in the last two decades, this was extended to fully private goods that include free electricity, foodgrains and even job guarantees. In no other country is such a spectrum of goods provided by the government. This is now impossible to reverse.
Finally, the meaning of development has been melted drastically under the weight of such ‘schemes’. What does it mean to develop an economy: is it its transformation from a set of traditional, low productivity, sectors to a modern system of skilled production? Or can that be short-circuited into a system of rising incomes for the poor without their shifting into more modern sectors? In India it is the latter conception that rules the intellectual roost. It is certain to end in a hard landing for a large majority of Indians who would by then be addled to ‘income support’ without a commensurate improvement in their skills. Historically this has not happened anywhere in the world.
To be fair, India is a democracy and if electors and the elected choose to defy the law of gravity, then so be it. And if economics is all about matching scarce resources with demands made on them, then running these new schemes is certainly possible. But that comes with a condition: there is a hard upper limit to what can be spent without causing macroeconomic imbalances. Schemes like NYAY—at its heart a mini Universal Basic Income of sorts—can indeed be run as the Congress says without economic problems. That requires ending the wild run of schemes that have proliferated over the years. From improved seeds to healthcare to education to the welfare of pregnant women, gigantic amounts are spent every year by the Centre. If NYAY is to see the light of day, all these schemes have to be ended.
That is the rub of the matter. Each of those ‘core of core’ and ‘core’ schemes has a lobby of sorts behind it nourished by the money allocated every year. The American economist Mancur Olson Jr dubbed them ‘distributional coalitions’ or groups that spar and fight for resources collected by the government. In the end these are not economic but political problems. But it is also a reality that just 1 per cent of the population that pays taxes cannot support an inverted pyramid of much greater magnitude. It is inevitable that the whole thing will collapse one day.