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Where is the money? Rahul Gandhi’s promise is going to cost a whopping Rs 3.60 lakh crore a year, 13% of union budget

The allocation for Minimum Income Guarantee Scheme will exceed the defence budget and will be second highest expenditure after the interest payment

Today Rahul Gandhi announced that if the Congress party comes to after the Lok Sabha elections, his government will implement the Minimum Income Guarantee Scheme. The Congress president gave some details of the scheme, which assures a minimum income amount for poor families of the country.

Rahul Gandhi said that an income line of Rs 12,000 has been set for the scheme, and it will cover 20% poorest families of the country. The government will pay Rs 72,000 per year to the eligible families under this scheme, and the amount will be credited directly to the bank account of beneficiaries.

An income line of Rs 12,000 means that government will ensure this amount as monthly income for eligible families, and the government will bridge the income gap of eligible families so that their monthly income becomes Rs 12,000 per month. This means, if monthly income of a family is Rs 9,000, the government will pay them Rs 3,000, if the monthly income is Rs 7,000, government will pay them Rs 5,000, and so on. As the scheme will pay Rs 72,000 per year, this means maximum amount to be paid per month will be Rs 6,000, although this was not mentioned by Rahul Gandhi in the press conference.

The Congress president mentioned that at 20% of the population, 5 crore families, or 25 crore people, of India will be benefited by this scheme. That means, at Rs 72,000 per year, there will be a total outgo of Rs 3.60 lakh crore per year under the Minimum Income Guarantee Scheme.

Although the scheme will only bridge the gap between actual income and Rs 12,000 per month, which means actual outgo can be less than 72,000 per family in a year, the fact is 20% of families will qualify for the highest level of income funding. Because a much higher proportion of households in India earn less than Rs 6,000 per month. According to Rangarajan Committee report, 29.5% of India’s population are below the poverty line. The poverty line has defined as Rs 32 per day in rural areas and Rs 47 per day in urban areas. This means people below the BPL in rural areas earn below Rs 960 per month, and people in urban areas earn below Rs 1,410 per month. Therefore, all of 20% population or 5 crore families will qualify for the highest amount of Rs 72,000 per year under the scheme.

If implemented as promised, this will be the second largest head of expenditure of the union government. The estimate of total expenditure for the 2019-20 budget is Rs 27.84 lakh crores, which means the total budget for the scheme will be 13% of the budget. This will be more than the 11% allocated for the defence expenditure in the 2019-20 budget, but less than the interest payment which leads the government expenditure at 24%. The amount for the scheme will also be around 2% of India’s GDP. The amount needed for the scheme will be the 6 times the budgeted amount for MGNREGA scheme, which is a big social welfare scheme. The MGNREGA budget for 2018-19 was Rs 55,000 crore, which was raised to Rs 60,000 for the 2019-20 budget.

13% of budget is a major portion, and this means either the government will have to drastically increase its revenue, or have to cut expenditure in other sectors. Or the government may opt for deficit budgeting, which is favoured by the Congress party, but the amount is too large to be funded by borrowing only. Although Rahul Gandhi said that all calculations have been done and the scheme has been found to be viable, he didn’t explain how. But by all estimates, this scheme will create a large hole in the finances of the government.

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