By Phalasha Nagpal
The war on poverty by any government must be founded on a strong and well-functioning welfare state that holds the promise of lifting its people out of poverty and ensuring sustainable socio-economic development. Today, India is one of the fastest-growing economies in the world, but all the sections of the population have not equally gained from the prospects of accelerated growth. This necessitates the need for the government to play a central role through actively strengthening its welfare programmes that accrue benefits for the poorest of its poor. Now, more than ever, the government cannot afford to redeem itself of its responsibilities by simply diverting funds towards cash transfers as the centrepiece for tackling poverty. One such populist ploy that has come forth recently is the Nyuntam Aay Yojana (NYAY).
Let us first dissect the scheme from a rational and economics vantage point to assess whether it is really meaningful? In the most simplistic terms, the scheme is proposed to be implemented as a minimum income guarantee scheme wherein every household with an annual income of less than Rs 72,000 would be provided the shortfall in income by the government. This means that, for instance, a household with an annual income of, say, Rs 60,000 would be entitled to receiving Rs 12,000 from the government under this scheme.
But it is the basic fundamentals of the scheme that raise questions. The first and foremost question arises regarding the rational basis of taking Rs 72,000 as the threshold for the minimum income guarantee for, say, an average family of five members.
An amount equivalent to Rs 72,000 per year essentially translates into a monthly household income of Rs 6,000 (72,000/12). This, in turn, means that each household member would have a basic income of Rs 1,200 a month (Rs 6,000/5). But on the basis of what rationale does the scheme consider a meagre amount of Rs 1,200 as sufficient enough to lift a person out of poverty?
According to the Economic Survey 2016-17, a universal basic income is premised on “the idea that a just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and services.” Therefore, it is important to ascertain whether guaranteeing Rs 40 per person per day ensures basic economic welfare to an individual—in terms of the most basic consumption, transportation, education and health expenditure?
There exists a complete vacuum in terms of how this amount was computed. Whether it was based on NSSO’s consumption expenditure, the poverty line estimates of Tendulkar or Rangarajan, or was it arrived at after ascertaining the imputed cost of essential goods and services required by an individual to lead a dignified life, or some other criteria? Besides, were factors such as market price fluctuations, inflation and economic cycles and their impact on purchasing power of the masses kept in mind while arriving at this figure?
The amount of assured income under NYAY seems to be more or less in the range of below poverty line estimates by the Tendulkar and Rangarajan committees formed over a decade ago and, therefore, dated. More importantly, these poverty line estimates have been widely criticised on grounds of underestimating consumption expenditures in terms of calorie intake and on health, education as well as on grounds of its methodology. A more recent committee on poverty held that the consumption basket should contain a food component that satisfies certain minimum nutritional requirements, as well as consumption expenditure on essential non-food item groups (education, clothing, conveyance and house rent), in addition to a residual set of behaviourally determined non-food expenditure. However, the estimates of the committee were based on the assumptions that the welfare state functions well and will provide basic necessities at subsidised prices. Following this assumption, the Rangarajan report recommended a monthly per-capita consumption expenditure of Rs 972 (rural areas) and Rs 1,407 (urban areas) as the poverty lines, respectively, at the all-India level. The amount proposed under the scheme is only sufficient to help the poor come above poverty line in rural areas provided all the existing schemes remain intact, even in terms of financial outlay. Any attempt to rationalise or replace existing schemes to finance NYAY is likely to leave the beneficiaries worse off. Seemingly, proceeding with the scheme without making it workable and meaningful is setting the stage for impeding the nation’s socio-economic development.
Thereafter comes the discernible challenge of the minimum income guarantee scheme imposing a serious burden on the fiscal capacity. Accordingly, given the limited fiscal space, NYAY would involve rationalising existing welfare schemes. Reducing welfare benefits in favour of NYAY would need to consider the fact that cash transfers and welfare benefits are not perfect substitutes for each other. This means that a conversion of welfare benefits into cash transfers involves incorporating additional costs borne by the beneficiary, i.e. transaction costs (like banking access, access to markets, etc) and transition costs (cost of learning and adapting to a new system of receiving and managing welfare benefits) of moving to cash.
Thereafter comes the critical aspect of scheme implementation. As a prerequisite for success, NYAY would need to be implemented in a robust manner with a mechanism that ensures that the income is transferred directly to the target beneficiaries, without leakages and exclusion errors. This would necessitate a two-pronged approach through proper target beneficiary identification and sound financial inclusion infrastructure. The scheme seeks to target the bottom 20% of the population comprised of households earning less than Rs 72,000 per annum. The scheme design does not impinge the grass-root realities of the people that it seeks to benefit. These potential target beneficiaries are largely employed in the informal economy as farmers, daily wage labourers, casual labourers, etc, with no official records of income. They survive in tenacious conditions with uncertain incomes and no employment security, and mostly without access to the formal banking system. Therefore, there exists no robust mechanism or reliable data source to identify all the individuals who earn less than Rs 12,000 per annum. The absence of a reliable beneficiary identification mechanism creates immense scope for exclusion errors. In case a large number of poor households are excluded from this scheme, the argument of it being a surgical strike on poverty would no longer hold. Therefore, the mechanism for target beneficiary identification under NYAY is court to failure.
Finally, not many seem to have considered the challenges regarding scheme administration. Assuming that the amount is adequate and the target beneficiaries have been correctly identified, how would the money reach the poor? Transferring funds to their bank accounts would require that every beneficiary of the household must have a bank account, a biometric and a linked mobile number. Until complete financial inclusion is achieved, implementing NYAY through digitised payment modes seems far from feasible.