Income support scheme can be realised by cutting other doles: Reddy

Congress President Rahul Gandhi’s minimum income support scheme for the poor can be implemented by curtailing other doles and allowing the fiscal deficit to widen, former RBI Governor Y. V. Reddy has said.

However, it would be difficult for state governments to implement a similar scheme as they largely depend on the Centre for finance and borrowing limit, he told PTI in an interview.

“I talk only in terms of central-state fiscal relations. The state governments have budget constraints that means state governments can’t spend more money because borrowing requires the permission of the Government of India. So, there is a limit (for state borrowing). If they implement some schemes like this (minimum income support scheme) that has to be within their own budget limit,” he said.

However, he said, the Centre has some liberty to increase the fiscal deficit and there are no such hard fiscal constraints.

“So, such programmes are implemented better if the Centre takes over. If the Centre is able to accommodate it within the Budget, FRBM (Fiscal Responsibility And Budget Management Act) target, then you can’t object...if Government of India says they will cut other expenditures based on their relative priorities, it can do it,” he said.

In a big bang election promise, the Congress earlier this week announced that 20 per cent families belonging to the poorest category will be given Rs 72,000 each annually as minimum income if the party comes to power.

“The final assault on poverty has begun. We will wipe out poverty from the country,” Gandhi had said, adding the Congress has studied the fiscal implications of the scheme and consulted renowned economists and experts before finalising the scheme.

Asked if there can be sharing of the Centre and states for implementation of such scheme, Reddy said it could lead to complications.

Reddy has co-authored with IES officer G R Reddy a book titled Indian Fiscal Federalism. According to this book, several developments in recent years point to the emergence of a new era in fiscal federalism, the contours of which are still unfolding.

The book highlighted some of the developments such as setting up of the GST Council, reduction of flexibility for states in revenue generation, along with an increased burden of expenditure and contentious Terms of Reference of the Fifteenth Finance Commission.

“The GST Council is a shining example of cooperative fiscal federalism at its best,” it said.

While the arrangement is yet to stand the test of time, the functioning so far gives rise to the hope that it will be a pillar of strength on the indirect revenue side, just as the Finance Commission is on the revenue expenditure side of Centre-State fiscal relations, the book said.

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