Pathways to an income guarantee (Why NYAY makes a lot of sense)

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 Pathways to an income guarantee (Why NYAY makes a lot of sense)

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• MIG catches up with Parties : The idea of a Minimum Income Guarantee (MIG) has gone politically mainstream in India. Basic idea is - Govt. pays the targeted group of citizens a fixed amount per month. Its smaller version is already launched - the PM-KISAN scheme. The Telangana Rythu-Bandhu scheme and Odisha KALIA schemes are state level versions.
• NYAY the most ambitious : Rahul Gandhi's Nyuntam Aay Yojana entails an annual transfer of Rs.72,000 to the poorest 5 cr families (25 crore people) costing Rs. 3.6 lakh crores per annum. All this may cost upto 1.92% of GDP. Money cannot be found easily for that unless (a) existing subsidies go, or (b) Fiscal deficit shoots up beyond what it is.
• Questions on NYAY :

1. Do we really need to spend so much more on the poor?
2. Can today's govt. finances afford it?
3. Is this scheme a good way of spending money on poor?
4. The answers may be Yes, No and No, respectively.

• Problem of our most vulnerables : In India, the most weak and vulnerable are the landless labourers, agri workers, marginal farmers, contract  workers (urban), and informal sector workers (urban). They all suffer from multi-dimensional poverty. High economic growth of past 30 years has bypassed them structurally. Most of these groups are indebted to the usurious moneylenders with little access to institutional lending (low rates).
• What income transfer will do :

1. To the poor : No doubt, it will reduce income inequalities and pull many out of poverty and indebtedness trap. Poor spend most of what they earn, and if their incomes are boosted, they will boost the economy through more demand. Downside will be inflation, that hurts the poor more than the rich.
2. To the workforce : Many small entrepreneurs (vegetable vendors, artisans etc.) will get interest-free working capital, so business will grow. But many may simply withdraw from the workforce.
3. To the State : It may quietly withdraw from providing basic citizen services!

• Overall, large-scale studies are needed to understand the real impact.
• How to practically go about it : Start incrementally, with Rs.15,000 per annum. That is not small - it is 25% of average consumption of poorest 40% households! So better food intake, health and education outcomes will start to happen. The risk of people stopping to work will be very low.
• Benefit of this : A moderate income support can go to larger number of families. The lowest 40% (10 cr households), income is less than their expenditures, so they borrow to simply exist. It will help them in a big way.
• Who gets it :

1. To identify beneficiaries, the SECC 2011 data shows that 6 cr households suffer from multidimensional poverty. These are homeless, tribal groups, landless, families without adult bread-earner etc. How to get the exact poorest 5 crore out of these? Impossible.
2. We can use the Agriculture Census 2015-16 to get a larger set of poor on criteria like multidimensional poverty, landlessness and marginal farmer. Together, these cover bottom 40% households (~ 10 cr).
3. Use the experience of schemes like MGNREGA, PM-KISAN, Ujjwala etc. and update the list.
4. For these 10 cr, we need Rs.1.5 lakh crore per annum.  Reduce the load by merging PM-KISAN also with it. Add tax on super-rich to boost tax collections.
5. Share the scheme load with all States too. Roll out in phases, like in MGNREGA.

• Warning : We cannot assume that this ends the need for universal basic services! Primary health and education has to be provided by the State, and cannot be subsumed under the direct income transfers. Insurance (health, crop and life) is also critical.
• Spend, but with care : Poor deserve that Rs.3.6 trillion, but with a lot of care. 
• Summary : The NYAY scheme needs a new approach of delivery, if it is to be feasible financially and materially.

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