Raghuram Rajan cautioned that the current fiscal space of India is not conducive for such a high-expenditure scheme. (Photo: Reuters)

Former Reserve Bank of India governor Raghuram Rajan thinks the minimum income guarantee scheme proposed by the Congress is good in theory but needs to take into account the fiscal realities of India.

Raghuram Rajan was speaking exclusively with India Today TV on the occasion of the release of his new book 'The Third Pillar'.

On March 25, Congress chief Rahul Gandhi announced that Rs 72,000 per year will be given as minimum income to poor families, benefiting around 25 crore people, if his party is voted to power in Lok Sabha polls.

The name of the proposed scheme is 'Nyuntam Aay Yojana' or NYAY. The word 'Nyay' stands for justice in Hindi.

While Raghuram Rajan agreed that the NYAY scheme announced by Congress will promote growth at the grassroots level, he remained sceptical about whether the Indian economy can afford such a scheme.

ALSO READ | Rahul Gandhi claims he consulted Raghuram Rajan on NYAY scheme, says it's a dhamaka

The NYAY scheme has a proposed expenditure of Rs 3.6 lakh crore over and above the existing Rs 3.34 lakh crore expenditure outlined by the Modi government in the 2019 budget. Since the Congress announced that the NYAY scheme will not subsume any existing government poverty alleviation schemes, it would mean the government of India would be spending Rs 6.94 lakh crore on subsidies if the Congress comes to power.

According to Raghuram Rajan, if implemented properly the Congress's minimum income guarantee scheme can "revolutionise things". "There are ways of structuring the scheme in a way that it creates growth at the grassroots level. It will allow people to make financial decisions on their own. The question is how it will roll out. Will it add on to existing schemes or will it revolutionise things? We have a chance to target poverty alleviation effectively. If done effectively it [NYAY scheme] can change how things are run" said Raghuram Rajan.

However, he cautioned that the current fiscal space of India is not conducive for such a high-expenditure scheme. "The government that comes needs to see what the fiscal space looks like. As of now, it is very tight. You cannot add a scheme upon scheme. A view should be taken post elections within the fiscal space available," said Raghuram Rajan.

Taking into account the current fiscal deficit of India, Raghuram Rajan said the Congress's NYAY scheme may not be feasible. He said, "Given where we are, can we add another 7 lakh crore subsidy? The answer is no. Any sensible government will see post elections how do I make what I promised happen."

Announcing the scheme Rahul Gandhi had said, "The time for change has come". Five crore families and 25 crore people will directly benefit from the scheme, he claimed, terming it is a "final assault" to eradicate poverty in the country.

"The final assault on poverty has begun. We will wipe out poverty from the country," Rahul Gandhi had said.

"This is a historic scheme which has not happened anywhere in the world. It is an extremely powerful, ground-breaking and well-thought through idea. We have consulted many economists on the scheme," Rahul Gandhi had said.