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Re: On NIT by Milton Friedman



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I think the proposal for NIT is not workable in India.
Firstly, it is necessary to note that the present data of people living 
below poverty line has been collected by the same government machinery as 
the people who are envisaged to administer negative income tax. These 
officials have generated reports which speak about much higher levels of 
poverty in different States than what is suggested by National Sample 
Survey. By extension, it is very likely that large number of the 'income tax 
returns' will be equally faulty too, with large number of undeserving people 
claiming the NIT. The State has no administrative mechanism to screen such 
voluminous data.
Secondly, it needs to be appreciated that the present method of identifying 
people below poverty line in rural areas as per Government of India, 
Ministry of Rural Development Department scheme, is fairly exhaustive.  For 
example, the enumerator asks the family members questions to ascertain data 
like "how much money did you spend in last month on food?" "how much money 
on transportation?" "how much money on drinks, cigarettes, pan etc?" Thus, 
the present database contains various break-up of average monthly 
expenditure of family.  Considering the issue that this data is collected 
with reference to people who do not earn enough to get minimum calories 
required, there is no difference for such people between income and 
expenditure because there is no 'saving'. Therefore the data that is likely 
to be thrown up will be so massive that most people will file 'negative 
reuturns' only.  And the State obviously will have no money to pay such 
gigantic sums of direct subsidy or NIT because no additionality in revenue 
is being contemplated.
Thirdly, the kind of misuse and rampant false records in the proposed scheme 
will be unprecedented because of the direct money factor.As 
Navneethakrishnan has rightly pointed out, many rich people with incomes 
which are not susceptible for verification, will file negative returns.
Fourthly, the proposed scheme does not address any direct factors which help 
in keeping a family poor. Availablity of resorces, control of resoruces, 
skills, entrepreneurship, raw material, marketing problems, technology, 
quality assurance, packaging, procuring bulk sales orders, scope for other 
interventions like, for example, by self help groups coming together to 
promote common economic activities---- all these issues are ignored by 
mechanically considering poor people as mere recepients of NIT in cash.
Because of these reasons, I feel that proposed NIT will be a remedy which 
will be worse than the disease.
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