India: Congress party’s income plan short of details

  • A USD52bn basic income plan promised by India’s main opposition Congress party if it’s voted to power sounds like tonic to the economy, but is short on details on what it means for the nation’s fiscal consolidation path.
  • The plan, which promises income support of as much as INR72,000 a year to 50 million families, left economists looking for answers on how this would be rolled out without breaching the budget deficit goal of 3.4% of GDP for FY20
  • Existing subsidy handouts are already putting pressure on the deficit targets.
  • Income support is a hot topic as India prepares for elections starting Apr 19, with Prime Minister Narendra Modi’s government already announcing more than USD10bn of cash handouts to about 120 million farmers. In the process, the government widened its fiscal deficit targets for the current financial year and the next.
  • The Congress hasn’t said how it would deal with Modi’s handout to farmers or whether it will trim 9% of the budget the government already spends on food, fertilizer, fuel and other subsidies to the poor.
  • The federal government alone runs about 950 central sector and centrally sponsored sub-programs that cost about 5% of GDP.
  • A minimum income set at INR72,000 annually would cost about 1.3% of GDP and benefit the bottom 33% of Indian households, representing a substantial improvement in living standards for the poorest segments of society, according to a report by Nitin Bharti and Lucas Chancel of Paris-based World Inequality Lab.

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