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Making Sense of NYAY

  • Category
    Polity & Governance
  • Published
    11th Apr, 2019

Last week, the Congress party announced its version of a quasi-universal basic income (UBI) scheme by promising an income guarantee of ?6,000 per monthto 50 million “poor" families if voted to power.

Issue

Context

  • Last week, the Congress party announced its version of a quasi-universal basic income (UBI) scheme by promising an income guarantee of ?6,000 per monthto 50 million “poor" families if voted to power.
  • The proposed scheme has been referred to as NyuntamAay Yojana, or NYAY.

About:

An income guarantee scheme is an important policy intervention for securing the objective of reducing both poverty and economic inequality.Money proposed to be given to the poor under 'NYAY' scheme would be deposited in the accounts of women.

NyuntamAay Yojana, or NYAY:

  • The scheme aims to guarantee a transfer of Rs 6,000 to every family that earns less than Rs 12,000 per month if the household is a member of the poorest 20% of all households in the population.
  • The estimated number of households in 2018 is 25 crore.
  • 20% of this number is five crore families. Five crore families multiplied by Rs 72,000 per family per year works out to an annual bill of Rs 3.6 lakh crore.

However, several questions around the scheme remain -

  • What is the nature of the proposed scheme?
  • What is its expected size?
  • How will it be financed?
  • How will it be delivered to its intended beneficiaries?

Background:

Oxfam India report:

  • 73 percent of the wealth generated last year went to the richest one percent, while 67 crore Indians who comprise the poorest half of the population saw one percent increase in their wealth.
  • India's top 10% of population holds 73% of the wealth.

Analysis

How fiscally ambitious is the scheme?

  • Given an Indian GDP of around Rs 188 lakh crore in 2018-19, the bill of Rs 3.6 lakh crore as a proportion of GDP is just around 9%.
  • From 2005-06 to 2013-14, the average annual ratio of ‘revenue forgone’ (which is a measure of exemptions and concessions attracted by direct and indirect taxes) to GDP was of the order of 6.45%.This is mainly assistance to corporate and business interests.
  • It is being criticized for supporting the rich, while a prospective programme of a vastly more modest support for the poor is met with the charge of violating fiscal discipline.
  • If the net worth of the 831 richest entities in the nation were to be capped at its present level with an annual wealth tax of 10%, then the revenue generated should amount to about 2.4% of GDP.
  • The bill for income guarantee is bound to grow if it is indexed for inflation and population growth.
  • By the same token the GDP figure should also grow with the growth of per capita GDP and population growth.
  • If both the numerator and the denominator should grow at roughly the same rate, the ratio of the income guarantee bill to GDP might be expected to be roughly constant over time

This paves the way for specifying income support not as a fixed amount, but as a fixed share of GDP.

However, any basic income guarantee scheme involves the problem of cadasterability and conduitability.

  • Cadasterability refers to the problem of preparing a ‘cadaster’ or list of all the names of eligible beneficiaries, with data on their present incomes
  • Conduitability refers to the problem of actually physically delivering the benefit of a welfare programme to its beneficiaries.

The poorest people are the ones that typically do not have access to banks or post office savings accounts, so unless there is concurrent effort (and money) incurred on building this infrastructure, delivery will continue to constitute a major difficulty.

Why the scheme is important?

  • Absolute levels of poverty have fallen in the country, particularly over the last two decades; from about two in five people living in poverty, it is now down to one in five.
  • The concern has now shifted to inequality—not just of incomes, but of opportunities—though it is yet to echo in public policy action.
  • The version of neoliberalism ideology influenced growth—which entails lowering of tariffs among other things to enable globalization—has clearly failed to trickle down.
  • Identifying the poor may be easy on paper, but extremely difficult in practice.
  • The best solution is to make the scheme universal and employ automatic exclusion criteria, like it has been done for ensuring food security.
  • The rapid technological changes are acerbating new kinds of inequalities defined around access to fundamental needs (primary education or healthcare).
  • These trends will only perpetuate the growing gap between the rich and poor in newer ways with consequences for an entire lifetime.
  • Socio Economic Caste Census of 2011 identified 107.3 million of the total 179.7 million rural households as deprived.
  • And within this group of deprived households, 42.2 million (or nearly 40%) were seeing the first generation of literates emerge in the family; and this, six decades after independence.

The NYAY scheme also poses certain challenges:

  1. The first one concerns fairness: An income of Rs 12,000 a month translates into Rs 1,44,000 a year. Adding numerous other existing in-kind transfers such as subsidized food, house, crop insurance, education and health insurance would likely bring this annual figure to Rs 2,00,000.
  2. In contrast, a hard-working family that earns Rs 3,00,000 must pay a tax of Rs 2,500.
  3. The second issue concerns financial feasibility.

Based on coverage of 20% families and Rs 6,000 a family, proponents of NYAY have placed the cost at Rs 3.6 trillion - 13% of total GoI expenditures in the 2019-20 budget.

But many families currently earn less than Rs 6,000 a month, and so will require a transfer of more than Rs 6,000 to cross the threshold of Rs 12,000.

Also, a lot more than 20% families will have to be covered by the scheme, thereby making NYAY’s true cost significantly higher than Rs 3.6 trillion.

How are such large funds to be freed up?

If not NYAY, what are other ways to provide a solution?

  • Promote inclusive growth by ensuring that the income of the bottom 40% of the population grows faster than of the top 10% so that the gap between the two begins to close.
  • This can be done by encouraging labour-intensive sectors that will create more jobs; investing in agriculture; and effectively implementing the social protection schemes that exist.
  • Bring data transparency, produce and make available high quality data on income and wealth.
  • Regularly monitor the measures the government takes to tackle the issue of rising inequality.
  • Seal the leaking wealth bucket by taking stringent measures against tax evasion and avoidance
  • Increasing wealth tax, reducing and eventually do away with corporate tax breaks
  • Creating a more equal opportunity country by increasing public expenditure on health and education.
  • Create a MGNREGA like scheme with inbuilt skill development and skill India components for urban poor. This programme must weigh in for livelihood parameters.

Learning Aid

Practice Question:

NYAY appears more as a political commitment to a massive pension scheme, equivalent to cash transfers of Rs 6,000 per month to the poorest 20 per cent households. Critically evaluate the feasibility of the scheme and also comment on the challenges that it may face in its implementation.

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