NYAY May End up Being a Big ANYAY

April 15, 2019
R. Ramakumar

For years, Rahul Gandhi’s effort has been to consistently point to the existence of “two Indias”, and carefully cultivate a pro-poor, left-of-centre image as distinct from, for instance, the “suit-boot ki sarkar” of Narendra Modi. The manifesto of the Congress party for the 2019 Parliament elections 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 back, Modi offered his story through the PM-Kisan, a scheme that promised to provide Rs 6000 annually to every farmer household. Gandhi’s effort is to match it with an alternative offer: Nyuntam Aay Yojana (NYAY), which promises Rs 6000 per month for the poorest 20 per cent of households.

The context of rising inequality

Gandhi’s 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 World Inequality Lab (WIL) estimates, the incomes of the bottom 90 per cent of the population grew at about 2 per cent per year, while the incomes of the top 1 per cent grew at 7 per cent per 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. 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 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, 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 the Gandhi’s brand as a messiah of the poor, the Congress manifesto speaks almost nothing on land redistribution or raising taxes on the urban rich. The manifesto’s argument is that India could 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 Gandhi’s idea of bridging the “two Indias”.

What is NYAY?

NYAY is a scheme that proposes a payment of Rs 6000 per month (or Rs 72,000 per year) for the poorest 20 per cent of households. There was much confusion during the announcement of the scheme. Rahul Gandhi, in his press conference on the 25th of March 2019, 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 per 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 households was about Rs 6000 per month and the plan was to provide a uniform transfer of an additional Rs 6000 per month so that, on an average, their incomes would rise to Rs 12,000 per month.

Doubts were immediately raised on how exactly the beneficiaries of NYAY 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 if the monthly income of the highest earning household member was (a) less than Rs 5,000; (b) between 5,000 and 10,000; and (c) more than Rs 10,000.

If no official data existed on incomes, how was the Congress planning to identify the beneficiaries of NYAY? Neither 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 [per month] or not. We need to identify the poorest 5 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 5 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” 5 crore households without knowing their levels of incomes? Or, are you going to identify 5 crore households, of whose incomes you know nothing about, but who you would identify as “poorest”? Either way, the argument would make no sense.

What became clear was that the Congress is clueless about how to select the poorest 20 per cent households. From what appears, NYAY would not be a scheme that would cover all households that earned less than Rs 12,000 per month, who in turn would be provided with Rs 6000 per month. The data to identify such households do not exist. The only way to identify households would be to organize a new census-type survey of the Indian population to collect income data. Such a survey would take at least 2 or 3 years to be completed. 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 existed in the ongoing programmes of the central and State governments and carve out a list of 5 crore households who would be “poor” by some non-income standard. In other words, NYAY would be a scheme that would provide Rs 6000 per month to a set of 5 crore households whose selection may have nothing to do with their levels of incomes.

NYAY, in other words, may end up being a big ANYAY on the poor of India. We might end up with another horror of targeting errors, just as in the BPL/APL division, in case NYAY becomes policy.