Rahul Gandhi’s minimum income plan will be a one time shock for labour market, says economist Sunil Sinha

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Updated: March 25, 2019 10:19:21 PM

Minimum Income Plan for Poor: Rahul Gandhi's proposal will push up the cost of labour in near term.

Rahul Gandhi, Minimum Income Plan for Poor,Sunil Sinha, Principal Economist, India Ratings.

Rahul Gandhi’s minimum income plan for poor: Congress President Rahul Gandhi surprised many economists when he announced a basic income support plan for the country’s five crore poor families. Congress President said if his party wins the Lok Sabha election then it will pay Rs 6,000 per month to 5 crore poor families, benefiting around 25 crore people. However, economists feel that though the idea of a minimum income support is doable but it will be a one time shock for the country’s labour market.

“It will be one time shock to job markets on the lines of demonetisation. It will push up the wages,” said Sunil Sinha, Principal Economists and Director of Public Finance of India Ratings, a Fitch Company.

There are reports that suggest that implementation of NREGA has resulted in the shortage of farm labourers in prosperous agrarian states like Punjab and Harayana. It has also pushed up the cost of labour for large farmers of Punjab as farm labourers from states like Uttar Pradesh and Bihar are not travelling to Punjab and Haryana in large numbers in search of farm work.

In this year’s interim budget, Narendra Modi government allocated Rs 60,000 crore to NREGA scheme, an increase of 9% over the previous year when it was kept at Rs 55,000 crore. However, Rahul Gandhi’s proposal entails an expenditure of Rs 3.6 lakh crore that is six times more than the allocation for NREGA scheme and it is bound to have a significant impact on the cost of labour in the country.

“This will destabilise the job market for the next two-three years. After that the labour market will stabilise. It will find a new equilibrium for itself,” says Sunil Sinha, adding that the same thing happened with the note ban. “Demonetisation was a massive disruption to Indian economy. However, the economy is being stabilised after 2-3 years and now it has more cash than earlier.”

Sunil Sinha says that increase in the real wages may have a positive spin off for the labour market as well. It will encourage more people to work which will eventually rationalise the labour market.

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