NYAY

NYAY: No bridge between two Indias

Print edition : April 26, 2019

Congress president Rahul Gandhi during the press conference at the party headquarters in New Delhi on March 25 in which he announced the NYAY scheme. Photo: Kamal Singh/PTI

A closer look at the Congress party’s proposed income transfer scheme.

“Two Indias are being created. One of the rich and the other of the poor… we are going to bridge these two Indias. And we are going to make sure that this one India that is formed has opportunity for all…. The idea is that you take the India of opportunity, you grow that India. Then you take some of the benefits, put them into the villages and thus engage and integrate that India into the first India.”

—Rahul Gandhi, different speeches

“Brand Rahul”, Aarthi Ramachandran argues in her 2012 book Decoding Rahul Gandhi, was primarily founded on the plank of “two Indias”. Over many years, Rahul Gandhi has carefully cultivated this pro-poor, left-of-centre image as distinct from, for instance, the “suit-boot ki sarkar” of Prime Minister Narendra Modi. The manifesto of the Congress party for the 2019 Parliament election is a careful attempt to build further on this brand of their leader. In today’s narrative-driven world, success in branding is determined by one’s ability to tell the best story. A few weeks ago, Modi offered his story through the Pradhan Mantri Kisan Samman Nidhi (PM-KSN), a scheme that promises to provide Rs.6,000 annually to every farmer household that has less than two hectares of land. Rahul Gandhi’s effort is to match it with an alternative offer: Nyuntam Aay Yojana (NYAY), which promises Rs.6,000 a month for the poorest 20 per cent of households.

The context

His offer has a specific background. Liberalisation of the Indian economy, particularly in the decade of the 2000s, produced high levels of economic growth. However, two associated outcomes were strikingly visible. First, the growth of incomes did not lead to an appreciable fall in absolute poverty or improvement in human development indicators. Secondly, the growth of incomes was deeply unequal in its spread. Since 2000, according to the estimates of the World Inequality Lab (WIL)—whose “core mission is to maintain and expand the World Inequality Database” (WID)—the incomes of the bottom 90 per cent of the population grew at about 2 per cent a year, while the incomes of the top 1 per cent grew at 7 per cent a year. Since 1980, if the share of income growth cornered by the top 0.1 per cent was 12 per cent, the corresponding share for the whole of the bottom 50 per cent was just 11 per cent. Rahul Gandhi’s effort has been to politically position himself as a representative of those who have lost out during this long phase of unequal growth. Thomas Piketty, a founder of the WIL, has admittedly been advising Rahul Gandhi on the design of NYAY.

There is another side to the inequality story that many observers miss. Income inequality in India is driven by inequality in wealth endowments. For 2012, the WID estimates showed that the top 1 per cent of India’s population owned 30 per cent of the total wealth and the top 10 per cent of India’s population owned 63 per cent of the total wealth. On the other hand, the bottom 50 per cent owned just 8 per cent of the total wealth. Land and buildings formed about 90 per cent of the wealth of households, and as such, unequal distribution of land has been the foundational factor that has generated and fostered income inequalities in the rural areas. This is not a new finding; scholars in agrarian studies have underlined this feature of rural inequality for decades. In the urban areas, it was the growth of financial assets and savings that explained a large part of the observed income inequality.

Thus, addressing income inequality requires a major redistributionist shift in economic policy. It requires decisive measures to redistribute land in the rural areas, and the introduction of stiff taxes on wealth, inheritance and long-term capital gains in the urban areas, apart from a general rise in corporate taxes. However, regardless of Rahul Gandhi’s brand as a messiah of the poor, the Congress manifesto has almost nothing on land redistribution or raising taxes on the urban rich. The manifesto’s argument is that India can be “an open and liberal market economy” even as it aims for “reduction of inequalities and assurance of welfare of all sections”. The inconsistency between the two aims, particularly in an era of free and open flows of international finance, does not appear germane. It is from this inconsistency that NYAY emerges: can you use the instrument of cash transfers to ameliorate the harshness of income poverty among the chronically poor even as you allow the rich to freely accumulate wealth? In this sense, NYAY also fits in well with Rahul Gandhi’s idea of bridging the “two Indias”.

What is NYAY?

NYAY is a scheme that proposes a payment of Rs.6,000 a month (or Rs.72,000 a year) for the poorest 20 per cent of households. There was much confusion during the announcement of the scheme. In his press conference on March 25, Rahul Gandhi stated that the Congress planned to provide a top-up cash transfer to every household in the poorest 20 per cent bracket so that their incomes would rise to the benchmark of Rs.12,000 a month. In the evening of the same day, the chairman of the party’s data analytics department, Praveen Chakravarty, was to correct Gandhi in a tweet: he said that the average income of the poorest 20 per cent of households was about Rs.6,000 per month and the plan was to provide a uniform transfer of an additional Rs.6,000 a month so that, on an average, their incomes would rise to Rs.12,000 a month.

Doubts were immediately raised about how exactly the beneficiaries would be identified. India does not officially collect data on household incomes. In the surveys of the National Sample Survey (NSS), consumption expenditure is collected as a proxy for income. One of the rare instances when data on incomes were collected was as part of the Socio-Economic and Caste Census (SECC) in 2011-12. Even here, however, actual income data were not collected; households were asked whether the monthly income of the highest earning household member was (a) less than Rs.5,000, (b) between Rs.5,000 and Rs,10,000 or (c) more than Rs.10,000.

If no official data existed on incomes, how was the Congress planning to identify the beneficiaries of the NYAY? Neither Rahul Gandhi nor Chakravarty gave an answer. Interestingly, three days later, in an interview with Karan Thapar, Chakravarty gave a curious spin on what the scheme was. He said: “What we need to do is to identify the poorest 20 per cent. We don’t need to identify who is earning Rs.12,000 [a month] or not. We need to identify the poorest five crore families of India today. And that is entirely possible and doable…. All I am telling you is in today’s world, given the datasets that are available, it is entirely possible to merely identify the poorest five crore families. I am not saying we need household income for every single household.”

Chakravarty’s was an absurd statement. How can you identify the “poorest” five crore households without knowing their levels of incomes? Or, are you going to identify five crore households, of whose incomes you know nothing, but who you would identify as “poorest”? Either way, the argument makes no sense. When Thapar persisted for a better answer, Chakravarty dished out some more absurdities.

“In economic policy, you don’t solve a policy for every individual household. That is not how economic policy works…. It works on averages…. The question of identifying beneficiaries has been totally overblown and exaggerated.”

It became clear that the Congress was clueless about how to select the poorest 20 per cent of households. From all appearances, the NYAY would not be a scheme that would cover all the households that earned less than Rs.12,000 a month. The data to identify such households do not exist. The only way to identify households would be to organise a new census-type survey of the Indian population to collect income data. Such a survey would take at least two or three years to complete. This was, clearly, not the plan of the Congress, as its manifesto promises to roll out the scheme in the first year itself. Instead, the plan appears to be to use whatever classifications of households exist in ongoing programmes of the Central and State governments and carve out a list of five crore households that would be considered “poor” by some non-income standard. In other words, the NYAY would be a scheme that would provide Rs.6,000 a month to a set of five crore households whose selection may have nothing to do with their levels of incomes.

Is NYAY an UBI?

The world over, the idea of Universal Basic Income (UBI) has become a popular policy suggestion among a section of economists and activists. While the origin of the idea can be traced back to the 18th century in Britain (as in the famous Elizabethan Poor Law), it entered into modern policy discussions in the late 1960s when the President Richard Nixon administration in the United States planned to introduce a UBI. In the original plan of the Nixon administration, the UBI was to be universal, that is the payment of $1,600 a year per family (at 1969 prices) was to be made with no means testing involved and with no consideration of the work status of family members. The Nixon administration ultimately did not implement this plan in this original form; it opted for the Family Assistance Plan (FAP), which had a work requirement built into it.

A major reason why the Nixon administration stepped back from a UBI was the fear that people would lose the incentive to work and earn an income for themselves. This remained one of the lasting fears, and the primary argument, against the introduction of a UBI in other countries over the following years.

But more recently, the idea of a UBI has made a return to policy discussions because of three related global concerns. First, the financial crisis of 2007-08 engendered global fears of a long-term stagnation in economic growth and employment. Secondly, the sharp rise in income and wealth inequality, particularly after the embrace of free market policies in the 1980s created a large class of “precariat”, that is people whose life and work was marked by everyday insecurity and vulnerability. Thirdly, the rapid progress in technology in the fields of robotics and artificial intelligence has opened up the possibility that less than full employment may remain a permanent feature of economies. Given these concerns, and as global capitalism expands further, a section of economists and activists has articulated the need for instituting an UBI to address the needs of people who are left behind.

Efforts are now being made in different parts of the world—as pilot experiments in Finland, the U.S., the United Kingdom, Kenya, Italy, Netherlands, Canada and other countries—to introduce some variant of a UBI.

In these new efforts, three characteristic features stand out. First, UBI should be universal and not based on any means test or work requirement. Secondly, UBI may replace existing income guarantee programmes but not attempt to substitute any existing in-kind transfer or subsidy. Thirdly, UBI should be essentially redistributionist in character. It should be financed by increasing the explicit or implicit taxes on the rich (for a review, see Madhura Swaminathan, “Getting the Basics Wrong”, The Hindu, March 1, 2017).

In all the three senses above, the NYAY is not a UBI. First, the NYAY is a targeted, not universal, programme. The identification of the poorest 20 per cent of households would be based on a means test. Secondly, the Congress has stated that while “merit” subsidies may be retained, “non-merit” subsidies may be slashed to generate resources for the NYAY. In other words, there is no commitment that subsidies on food, fuel, fertilizers, power, kerosene and edible oil—the major non-merit subsidies—would not be slashed to finance it. Even when the NYAY offers a cash transfer to the poorest, there may be a rise in the costs incurred by these very households in the spheres of “non-merit” goods. Thirdly, the Congress manifesto takes great care to affirm that a rise in the income tax rates or corporate tax rates to finance the NYAY was not under consideration. There is also no mention in the manifesto of any restoration of wealth tax, inheritance tax or long-term capital gains tax.

In sum, NYAY is not the beginning of an effort to introduce a UBI in India. In this sense, even the idea floated by former Chief Economic Adviser Arvind Subramanian to introduce a “quasi-UBI” by covering 75 per cent of households cannot be called a UBI because of its feature of targeting.

Summing up

One of the criticisms of UBI is that it marks an effort by global capitalism to contain its adverse impacts, such as rising inequality and unemployment. While leaving the economic foundations of inequality and unemployment intact, a UBI-type policy attempts to share a part of the proceeds of capital accumulation with those who fall by the wayside. In this sense, UBI facilitates the alleviation of a moral debt; the rich could continue to become richer feeling less guilty about their animal spirits. This may also be why Elon Musk would find UBI “necessary”, Richard Branson would speak about UBI helping to raise the “self-esteem” of the poor and the U.S. President-hopeful Andrew Yang would portray UBI as paving the way towards a more “human capitalism”.

The challenge, then, is to make UBI part of a progressive and redistributionist social policy that would be free from finance capital’s love for narrow targeting and revulsion for higher tax rates. UBI should also be firmly distanced from technocratic suggestions, where all social policies are monetised and collapsed into a fixed cash transfer. Even as the universal provision of social services should continue to play its prescribed role, UBI could usefully supplement but not supplant them. For all this, however, we need a social policy divorced from neoliberalism. The NYAY scheme of the Congress, unfortunately, fails this test. Two Indias may just remain.

R. Ramakumar teaches at the Tata Institute of Social Sciences, Mumbai.

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