At a high-profile press conference on March 25, Congress President Rahul Gandhi announced that if his party came to power, it would send Rs 72,000 every year to the bank accounts of the country’s 20% poorest families – about 5 crore families, based on 2011 census data. He projected this initiative, called Nyuntam Aay Yojana or NYAY, as “the final assault on poverty” in India.

The good news is that this proposal is more realistic at least than the Congress’ earlier “top-up” formula. Under that formula, the government was to fill the gap between the guaranteed income – say Rs 12,000 a month – and a family’s actual income. This makes little sense. For one thing, it would require household-specific income data that are virtually impossible to collect. For another, it would give poor households little reason to work: if you are going to end up with the guaranteed income anyway, why bother?

Perhaps to avoid charges of inconsistency, Gandhi created an impression that NYAY is based on the top-up formula. But this is best ignored: NYAY is just a plain, targetted, uniform cash transfer. It guarantees Rs 6,000 per month to the recipients – nothing more, nothing less.

Gandhi’s presentation did not address two obvious questions: where will the money come from, and how will the poorest 20% be identified? Nor did Praveen Chakravarty, the chairperson of Congress’s data analytics department and one of the brains behind NYAY, have clear answers to these questions in a recent interview published in The Wire.

Sending Rs 72,000 to 5 crore households every year would cost Rs 360,000 crore per year, or close to 2% of India’s Gross Domestic Product today. If NYAY is rolled out gradually over five years and India’s GDP continues to grow at 7% per year or so in real terms, the cost will be more like 1.4% of GDP at its peak. That is still a big commitment, but there are ways.

Reducing subsidies for the privileged and taxing the rich would be a good start. A small wealth tax on the richest 0.1%, according to Nitin Bharti and Lucas Chancel at the World Inequality Lab, would generate annual tax revenue of more than 1% of GDP on its own. If one could be sure that this money will reach the poorest 20%, it might be worth it. Indeed, income support of Rs 6,000 per month would mean a lot to families that are on the margin of subsistence.

A homeless man warms himself as another sleeps alongside a fire at the roadside in New Delhi on January 7, 2015. Photo: SAJJAD HUSSAIN / AFP
A homeless man warms himself as another sleeps alongside a fire at the roadside in New Delhi on January 7, 2015. Photo: SAJJAD HUSSAIN / AFP

But here is a catch. How does one identify these 20% poorest families? As of now, no one seems to have the faintest idea. According to Praveen Chakravarty, a committee and “data science” will take care of it. That does not cut much mustard. The record of poverty measurement committees in India is far from encouraging, and data science is a bit of an all-purpose buzzword these days.

There is a risk that NYAY will take us right back to the days of the infamous Below the Poverty Line surveys, when the poor were identified using a hit-or-miss scoring system. Today, we can do better, but it will still be hit-or-miss. High inclusion and exclusion errors would drastically reduce the benefits of NYAY. In the end, it may or may not contribute more to poverty reduction than, say, universal pensions for the elderly, single women and disabled persons – one possible alternative.

Coming back to the fiscal costs, the danger of NYAY is that it will end up squeezing other parts of the social sector, or delaying other important initiatives such as universal health care. It is all very well to say that the rich should be taxed – I am for it. The fact remains that the privileged are good at defending their privileges. Promising a scheme that costs Rs 360,000 crores per year without a corresponding commitment to tax the rich carries the risk that NYAY will end up displacing other valuable social programmes.

Pluralist Vs Assertive

In this connection, it is worth noting that there are, roughly speaking, two schools of thought on cash transfers as a tool of social policy. One school of thought, the pluralist school so to speak, recognises that there is a role for cash transfers in India’s social security system, without devaluing other forms of intervention. In this view, specific cash-transfer schemes such as social security pensions and maternity entitlements are useful complements to, say, employment guarantee and universal health care.

The other school of thought, which might be called the assertive school, has little faith in public services and views cash transfers as a potential substitute for most other forms of social expenditure. In fact, for some extremists in this school, cash transfer schemes or proposals are just a means of resisting the welfare state.

The contrast between these two schools of thought is evident in recent debates on universal basic income or UBI. Many leading proponents of UBI belong squarely to the pluralist school – Philip van Parijs is one name that comes to mind. This is partly because they write in the context of western Europe, where the need for extensive public services is well accepted.

But in recent years, and particularly in the Indian context, a different view of UBI has emerged under the influence of the assertive school. The essence of this view was well put in a recent article by Shruti Rajagopalan: “UBI seeks to eliminate all other welfare benefits and entitlements, which are prone to mis-targeting and leakage, and replace them with a single, clean direct cash transfer offered to everyone.”

If NYAY sees the light of day, the assertive school is bound to assert itself and call for a rollback of other welfare schemes. Indeed, that has already happened. In a forceful editorial earlier this week, for instance, Economic Times argued that “the only way this can be implemented without descending into fiscal ruin is to roll all other subsidies for households into this one”.

One reassuring sign that Rahul Gandhi takes a more balanced view is his recent statement, in Raipur, that the Congress is committed to universal health care, along with raising public expenditure on health care to 3% of GDP. That was a very important announcement – perhaps even more important than NYAY. But realising both universal health care and NYAY within five years is an ambitious goal, and there is no sign of any roadmap. If NYAY steals the show, universal health care could be the casualty.

In short, the NYAY proposal is too vague for comfort, let alone enthusiasm. But the political commitment it incarnates is valuable, and NYAY is an improvement over the top-up formula. If all goes well, the proposal will improve further even as the commitment remains.

The author is Visiting Professor at the Department of Economics, Ranchi University.

Also read:

NYAY: What we know about Rahul Gandhi’s Rs 6,000 per month income scheme for the poor