As the main election promise for Lok Sabha elections, the Congress party has announced a minimum income guarantee scheme, the Nyuntam Aay Yojana (NYAY). According to this scheme, 20% poorest people in the country of 5 crore families will be paid Rs 72,000 per year. This means an outgo of Rs 3,60,000 crore per year, but the party didn’t provide details of how they propose to fund this massive scheme. Now noted economist Abhijit Banerjee, who advised the Congress party on the formulation of the scheme, has made some startling revelations about the thinking behind the scheme.
In an interview with Times Now, Banerjee said that the NYAY will have to funded by new taxes. He said that at present India’s fiscal deficit is so large that the scheme is simply not sustainable without raising taxes.
When asked whether the NYAY will have to be funded by a tax or a series of taxes, Banerjee replied, “that is correct”. He also said that India will have to have new fiscal resources, saying that the country is at present “undertaxed”. He said that India needs to desperately raise taxes irrespective of the NYAY scheme. He also talked about expanding the tax base.
When asked whether the scheme will be viable without increasing taxes, Banerjee tried to avoid the question saying that the economy itself is not viable without increasing taxes. Nothing is viable without raising taxes, he emphasised, implying that the minimum income guarantee scheme is also not viable without increasing taxes.
We’re running a deficit which is so large that we have one of the world’s highest interest rates now. This is simply not sustainable. It’s not good for the economy. We need to do something about it: Abhijit Banerjee, Economist (Nyay Advisor) to @RShivshankar | #NyayKaSach pic.twitter.com/tHk9aU24b2
— TIMES NOW (@TimesNow) March 29, 2019
Banerjee also said that India has been hurt by low inflation during the NDA government, and budgets of NDA government are not viable. He said that stopping the “inflation tax” by the NDA government has hurt the economy badly. He said that during UPA government, although the interests were high, due to the use of “inflation tax” by the government, the share of government debt in GDP was falling. According to Banerjee, now that the NDA government is not using the “inflation tax”, it has meant there are few sources of revenue for the government.
Nothing’s viable without raising taxes: Abhijit Banerjee, Economist (NYAY Advisor) while speaking to @RShivshankar | #NyayKaSach pic.twitter.com/AdZSGQFmVd
— TIMES NOW (@TimesNow) March 29, 2019
Abhijit Banerjee also said that the implementation of NYAY will mean that lots of current welfare programs will have to be scrapped. He said that many of the current schemes have no purpose, and nobody knows what their purposes are, and they will be replaced by NYAY. He said that subsidies provided for fertilizer, power, water etc are distortionary subsidies, and they need to go. Banerjee said that these subsidies are not good for the economy, they are not good for efficiency.
From the comments of economist Abhijeet Banerjee, it is clear that for the Congress scheme to be implemented, the government will have to increase taxes, raise inflation, and scrap existing welfare schemes, something which Congress party is not telling the people while talking about it.
