Rahul Gandhi may bet big on NYAY but how viable is it

Indian National Congress President Rahul Gandhi’s promise to provide Rs 72,000 per year to the poorest 20 per cent of the country, in case his party forms the next government, has stirred up a political storm and put the Narendra Modi regime is a spot — it has declared this to be a “non-implementable poll promise”.

On his part Union minister Piyush Goyal announced a direct cash transfer of Rs 6,000 per year to small and marginal farmer households, in his interim Budget earlier this year. These announcements have brought cash support back into the fray ahead of the seven-phase parliamentary elections.

The Congress has compared its proposed NYAY — Nyuntam Aay Yojana (Minium Income Scheme) — with the the landmark Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), which helped eight crore people out of poverty. “It’s MGNREGS II, in which we have planned to take out five crore families and 25 crore people out of the web of poverty,” Gandhi said.

The blue print of this scheme, however, is yet to be released.

“Critics would recall how MGNREGS was reviled, but it went on to become the most powerful weapon against poverty,” former finance secretary Arvind Mayaram said.

A back-of-the-envelope calculation shows that the NYAY scheme would require Rs 3.6 lakh crore — which is 13.4 per cent of total Union Expenditure Budget for 2019-20 of Rs 26.83 lakh crore. This is more than the total spending on rural (Rs 1.17 lakh crore), health (Rs 63,000 crore) and education (Rs 37,000 crore) sectors for 2019-20. The total food subsidy spending estimated this year is Rs 1.84 lakh crore.    

“Money is there but a lack of political will makes market economists question the proposed scheme,” Devinder Sharma, an agriculture and trade policy analyst, said.

“Every year, the government of India has been providing subsidy to the tune of Rs 1.87 lakh crore without getting any outcome. It is agriculture, which can create job opportunities. The farmers should be given an income support of Rs 18,000 per month,” he added.

Gandhi, during the announcement, had explained that this would be like a top-up scheme for those earning less than Rs 12,000 per month, will receive the remaining amount from the government.

This means that Gandhi assumes that even the bottom one-fifth of the population earns about Rs 6,000 per month. And their income needs to raised to at least Rs 12,000 per month.

It’s confusing how the Congress came to the figure of Rs 12,000 per month for a family to get out of the web of poverty.

The C Rangarajan committee report drew the poverty line at Rs 32 per day for rural areas and Rs 47 per day for urban areas. This means Rs 960 per month for rural areas and Rs 1,410 per month for urban areas.

Praveen Chakravarti, who heads Congress' data analytics, pegs the NYAY outgo at Rs 3.6 lakh crore at its peak. “The trickle-down effects of economy is under question, or it has been vastly exaggerated. There is need for a new social contract that redefines the relation between the state and citizen,” he said.

The National Sample Survey Office (NSSO) data shows that one-third of the rural population lives in the shadow of indebtedness, and cash transfer of Rs 12,000 per month would certainly make a difference to their lives.

The indebtedness of rural households was about 31.4 per cent and 22.4% per cent among the urban households. In 2002, this was 26.5 per cent and 17.8 per cent respectively.

The amount of debt (AOD) per household was seen to be less in the rural sector than in the urban, at Rs 32,522 and Rs 84,625 on an average, respectively. Compared to this, the AOD per indebted household was Rs 1,03,457 and Rs 3,78,238 in the rural and urban sectors respectively.

The NSSO data confirms India’s worsening agrarian crisis with more than half the agriculture households in debt. The southern states, including Andhra Pradesh, Telangana and Tamil Nadu, are the worst affected. The average agriculture household debt is around Rs 47,000. 

Implementation problem

In 2010, during the second term of the United Progressive Alliance government, it had ideated a cash transfer scheme to stop leakages in existing welfare schemes. The government had planned to directly transfer the welfare amount to the poor.

It was estimated that the government spent Rs 3.65 to transfer Re 1 to the beneficiaries. This means that the government needs to spend more than three times to reach out to beneficiaries.

The idea of cash transfers emerged from Latin American countries like Mexico and Brazil. Mexico was the first country to start such a programme called Progresa in 1997 — the year it faced an economic meltdown.

According to a study, in Brazil, over 82 per cent people covered by the Bolsa Família scheme reported eating better. Stunting in children lowered, and the scheme’s success showed in the elections.

This is the first time that a political party is floating cash transfer schemes to gain electoral benefits in India. But the government of India has already been engaged in other cash transfer schemes like maternal benefit scheme, scholarship schemes, child nutrition schemes, skill development schemes, etc.

The problem lies in identifying and targeting the poorest of the poor. “Implementation design and identification of beneficiaries has to be right while rolling out this scheme” says Mayaram.

Only a few studies give an indicative figure on the number of poor families in India. The erstwhile planning commission had appointed an expert committee in June 2012 under the chairmanship of Rangarajan, which estimated that there are 260.5 million poor families in rural India. (see table below)