After a long time, a game changing idea came from the Congress party. NYAY – or Nyuntam Aay Yojana (Minimum Wage Scheme) – aims to provide the poorest 5 crore Indian families an amount of Rs 72,000 per year, every year. This scheme, announced by Congress president Rahul Gandhi, instantly grabbed headlines.
It’s likely the announcement had a positive political impact for Congress. Given the attention the scheme has grabbed, there’s a good chance something like NYAY will be implemented no matter which government finally comes to the Centre. The Modi government announced a scheme like this for farmers just a few months ago. The Income Support Scheme promises Rs 6,000 per year for farmers (subject to thresholds like landholding). But where is Rs 6,000 per year compared to Rs 72,000? Rahul scored because he announced a 12 times higher amount. But can it be done? We discuss the (boring) economics of it a bit later.
Before we get into the funding of NYAY, let’s look at it from a moral standpoint. There are moral reasons in favour of as well as against NYAY. We do have some of the poorest people on earth. Without money in their pockets, they can do little to get out of the poverty trap. This money in hand can help people choose how they want to improve their life – better food, shelter, education or anything else. Instead of waiting for the government to fix your life, you get some cash to do it yourself. If this scheme can avoid loan waivers (which destroy the lending and repayment culture), there can be another moral case for it as well.
On the other hand, two moral issues go against NYAY. One, the government is using taxpayer money to fund a massive subsidy that may not have the consent of the same taxpayers. Two, a culture of getting money for free can create a sense of entitlement and disrupt the labour market. India already has low labour productivity, and NYAY can harm it further.
Overall, despite the moral pluses and minuses, given India’s abject poverty, NYAY does have a moral case for it. This brings us to the other important aspect of it – the economics and implementation.
One, can we afford it? You don’t need to be an economics major to figure out that paying 5 crore families Rs 72,000 a year will cost a lot. Multiply these two numbers and you get a total of Rs 3.6 lakh crore. That’s a massive amount of money even at the central government budget level. It’s roughly a fifth of the Centre’s share of tax revenues (Rs 18 lakh crore). Already, the central government spends more than it earns (the deficit) and these additional costs will throw our budgets further out of whack.
To understand this in layman terms – imagine someone earning Rs 18,000 and spending Rs 20,000 a month. He or she funds the difference on a credit card and hopes to pay it back with the next raise. Now, tell the same person your expense will go up to Rs 24,000 a month but your income stays at Rs 18,000 a month. All of a sudden the income-expense gap widens dramatically.
The credit card bill, already high, will become even higher. In government budget terms this means more borrowing – which in turn will lead to higher interest rates, which has the effect of cutting private investments. The higher deficit also means the government will print more money, leading to inflation. The free NYAY money in the hands of people will also reach the markets, and lead to further inflation. Yes, nothing in life comes free, especially cash handouts.
Of course, we can raise revenue not to let the deficit shoot up. The government can increase income taxes (remember the beloved cesses? NYAY cess coming soon!), corporate taxes (which will lead to lower Indian competitiveness), GST (already high, but hey, all for NYAY!) and add a whole bunch of other taxes here and there. It can also cut spending on roads, healthcare and education to pay for this. Yes, it will be unpleasant – nothing comes free, especially nothing this massive! Of course, in India higher taxes can also mean more tax evasion, which had come somewhat under control in the past few years.
MGNREGA, one of the biggest subsidy schemes ever announced, costs us Rs 50,000 crore per year. NYAY is expected to cost over seven times that. Can we do it? Yes we can, but digesting an expense like this is going to hurt us in other ways. Lower growth, more inflation, lower investments, higher taxes and yes, fewer jobs.
Finally, the last thing we have to consider is implementation. At higher income levels, where taxes are filed and TDS deducted, we have a good idea of what people are earning. At the income levels NYAY is targeting, it is near impossible to know who is earning what. Imagine an auto driver earning Rs 17,000 a month. If he shows his income as Rs 12,000, he will get the NYAY subsidy. What do you think he is going to do?
And the person who is checking these incomes, and approving a Rs 72,000 transfer, what do you think he is going to demand to approve your name? As an Indian, you probably can imagine the misuse that will happen. Frankly, we still don’t have any answers on how to prevent that.
Any scheme that aims to help the poor is welcome. At the same time, to just view it from a political or moral lens is not enough. For a massive scheme like NYAY numbers are important – particularly what will we give up for this, as well as the looming implementation issues.
NYAY is a potentially good scheme for India. However, if not thought through, we may end up doing a lot more anyay (injustice) in the process of achieving a little bit of nyay (justice).
DISCLAIMER : Views expressed above are the author’s own.