NYAY: Garibi bachao, not hatao
Source: By Surjit S Bhalla: The Indian Express
It is now official. After the release of the manifesto, the Congress believes its NYAY programme for poverty elimination is a game changer, a political winner, and a winner of advanced thinking on the subject. To bolster this claim, Congress President Rahul Gandhi said the party had consulted “all big economists, without telling anyone, without giving any speeches” on the Nyuntam Aay Yojana or NYAY. A news report quoted Rahul Gandhi as saying: “We were engaged in this work for six months. Take the list of all big economists of the world, we consulted them. Raghuram Rajan… one by one. The first thing we came to know that there should be a minimum income line. We calculated and the result was that the minimum income line should be Rs 12,000 per month.”
Further, if you look at the hoopla surrounding this master design (names of some leading poverty economists of the world — from Abhijit Banerjee to Raghuram Rajan to Thomas Piketty — were invoked to show thinking behind the plan) one would infer that this was a major development in thinking. I will show how the minimum income guarantee (MIG) scheme involves some very confused thinking, and knowledge, about the Indian record of poverty, and its alleviation.
I find it most unusual (but not surprising) for the Congress to not claim credit for poverty alleviation (and near elimination according to the existing too-low official poverty line). For purposes of discussion, let us analyse India’s poverty alleviation record till 2011-12 (and 2013-14) — the time-period when the UPA was in power. Since this is a record going back the last 70 years, let us give most of the credit (and blame) to the Congress for all the economic developments that have taken place in India.
At the time Indira Gandhi coined the slogan, garibi hatao in 1971, India was a very very poor country with over 80 per cent of the population deemed absolutely poor, according to the official Tendulkar poverty line. According to this poverty line [approximately a consumption level of Rs 850 per person per month (pppm)], and the same as the World Bank poverty line of PPP $1.9 per person per day, poverty in India was only 12 per cent of the population in 2011-12. This is amongst the best poverty alleviation efforts in the world, and comparable to China which had reduced its absolute poverty rate to 9 per cent over the same period. You would think that the Congress would be proudly proclaiming from the roof-tops that it had provided a spectacular reduction in poverty. But you would be wrong — and I would not be ashamed.
What is the poverty line in NYAY, eight years after 2011-12? The same in real terms as in 2004-5 and 2011-12, it is Rs 1,400 per person, or Rs 6,000 per month for a family of 4.3 persons. The approximate absolute poverty level in India in 2019-20 — just 3 per cent of the population. By ostensibly targeting the bottom 5 or 10 per cent, the NYAY programme is garibi bachao, not garibi hatao.
One of the major consultants to the Congress master plan of poverty alleviation is Piketty. His analysis (along with co-author Lucas Chancel) claimed, in the latter half of 2017, that Indian income inequality had worsened to beyond Brazilian and South African depths, which were among the worst in the world, and had deteriorated the most during the UPA period (2004/5 to 2013/14). Indeed, their analysis stops around 2015. At the time this analysis was presented, I was the only person who commented, in seminars and articles in The Indian Express, that these conclusions were very suspect.
At that time, I was a newly-appointed member of Narendra Modi’s Economic Advisory Council. Not one Congress economist, not one of the 108 economists busy writing letters and advising the Congress on NYAY, dared to question Piketty. I had said at that time, as I have repeated often times over the last 20 years, India’s record of poverty alleviation is among the best. And that income inequality worse than Brazilian levels was a figment of fertile imaginations. Please recognise that you cannot have both inequality zooming and poverty falling precipitously.
Back to the ill-conceived NYAY, It will retain all existing “merit” subsidies. Food is a very large component of the poor woman’s budget (close to 60 per cent). And India has been operating corrupt schemes to “deliver” food to the poor. The corrupt PDS system of foodgrain distribution is supported by a very corrupt MSP system. In the manifesto, the Congress claims that “in the last five years, under the BJP government, the agriculture sector has been driven into deep crisis. Adequate MSP was denied for 4 years”. In other words, support more PDS, higher MSPs for rich farmers, and NYAY.
Are there better alternatives available? In early January, 2018, Karan Bhasin and I presented a detailed paper on a targeted basic income (TBI) scheme for India. A scheme which was not very costly (only Rs 2.7 trillion or about 1.6 per cent of 2019-20 GDP), had the World Bank middle-income poverty line of PPP $3.1 as its basis, and could easily be financed by phasing out corrupt PDS and MSP regimes. Note that both the Congress and the BJP have followed and enhanced the wrong PDS/MSP policy. This must change in the new government, regardless of who wins the next election.
There are moral, logical and economic reasons for helping the bottom third of the population achieving a much higher standard of living. This is very doable, and can easily be financed. Note that a TBI (targeted basic income) scheme is identical to the much-applauded negative income tax scheme — the only difference being that you need not be in the tax net to receive income support.
Instead of a workable targeted income support system, the confused Congress has offered a poverty alleviation income support scheme — but one without increasing the poverty line! This scheme, as the quote earlier from Rahul Gandhi indicates, is profound, and unique, and never been tried before. “To ensure a life of dignity to all Indians,” the Congress proposes to transfer Rs 6,000 to the bottom 20 per cent of households.
There are two major aspects to this oh-so-simple programme. First, it was tried in 1795 and it failed miserably. Karl Polanyi writes in The Great Transformation: “The justices of Berkshire, meeting at the Pelikan Inn, in Speenhamland, near Newbury, on May 6, 1795, in a time of great distress, decided that subsidies in aid of wages should be granted in accordance with a scale dependent upon the price of bread, so that a minimum income should be assured to the poor irrespective of their earnings.” This guarantee of a minimum income proved the undoing of the system. Each person was guaranteed the same level of income; each person ended up with the same level of income, whether they worked or not. Surprise! Nobody worked, and the scheme failed.
The NYAY scheme (sometimes a scam is a scheme) is additionally politically flawed. It is bound to fail. Worse, because of its format, it is a self-designed political disaster. (As someone said, if you are going to commit suicide, do it at the beginning!) You decide for yourself from the following simple extrapolation of the 2011-12 NSSO consumption distribution to 2019-20.
The following per month family income levels are obtained, after the Rs 6,000 NYAY transfer, for the following percentiles in the distribution (1, 5, 15 and 20): Rs 10,280, Rs 12,500, Rs 14,480, Rs 15,240. So far so good — everybody in the bottom 20 per cent has Rs 6,000 extra consumption (income). Now I want to report the 30th, 40th, 50th and the 58th percentile levels of income: Rs 10,670, Rs 12,130, Rs 13,820, and Rs 15,440. Note that the Congress will succeed in political harakiri — it would upset, and alienate, close to 40 per cent of the population, from the 21st to the 58th percentile. Rahul Gandhi and his world-renowned team of advisers are right. The NYAY scheme is unique, never been tried. The reason — no one has (stupidly) dared to adopt it!
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