How welfare politics in US has inspired ideas in Congress, BJP manifestos

The long slide in workers' bargaining power in the West, and a decline in their share of national income, is well documented. Something similar has occurred in India too.

Alexandria Ocasio-Cortez and Andrew Yang might not even be aware of it, but the controversial economic ideas espoused by the two young US politicians are being tested in a national election thousands of miles away.

In India’s polls, which start on Thursday and go on for more than five weeks, 900 million voters will decide on whether to give Prime Minister Narendra Modi a second term.

Opposition leader Rahul Gandhi’s Congress Party is trying to undercut Modi’s appeal by promising Rs 72,000 ($1,038) a year to each of the country’s 50 million poorest families. The plan has a distinct resemblance to the $1,000-a-month universal basic income that businessman Yang, seeking a 2020 Democratic presidential nomination, has proposed for every American adult.

New York Representative Ocasio-Cortez’s call for a jobs guarantee, the most ambitious part of her Green New Deal, also finds an echo in India, where unemployment and rural distress are central election issues. The Congress Party’s manifesto vows to fill 3.4 million public sector jobs and bolster a taxpayer-funded rural employment program to 150 days of assured work. That would be up from 100 days at present (although even 50 days of work has proved hard to deliver).

Modi’s Bharatiya Janata Party has criticized the opposition for promoting policies it says will raise the tax burden on the middle class. In its own manifesto, the BJP pledged to cut taxes for middle-income families while promising a more modest Rs 6,000 a year cash transfer to all farmers.

The Congress Party’s income supplement would cost 2 per cent of current GDP, once it ramps up. By then, sustained double-digit nominal GDP expansion will have lowered the program’s cost to no more than 1.2 per cent to 1.5 per cent of GDP, according to the party's head of data analytics. However, if the extra purchasing power pushes up prices more than output, then politicians will almost certainly come under pressure to lift that initial $1,000 a year payment.

Even assuming that the government recouped some of the cost by taxing increased sales of goods and services and higher corporate profit, it would have to curb other subsidies and expenditure. Borrowing more isn’t an option for India. Without a surge in household financial savings, which have ranged between 9 per cent and 11 per cent of GDP in recent years, having a public sector that eats up more than 8 per cent of GDP would place a very heavy burden on the private sector.

Business Standard