There are two reasons that the recent announcement on Nyunatam Aay Yojana (NYAY) by the Congress is welcome – one, a long overdue focus on substantive issues ahead of the elections and two, the focus on the poor is especially welcome.
But there are several caveats. One, the cash transfer that has been announced will cost under 2% of the GDP. Either the government will have to raise more tax revenues or, very worrying, it will cut back on existing subsidies. Hints of the latter are already emerging in the media.
Though the pronouncements so far emphasise that they will target the subsidies for the better-off, there is also talk of merging the National Rural Employment Guarantee Act (NREGA) or other forms of social support to the poor. This may end up being a scheme that gives with one hand and takes with the other.
There has been a fair bit of alarmism regarding the cost of the programme. On the tax side, in comparative terms, both in terms of the income tax base and tax rates, India is a bit of a laggard. There is scope for improving both. Further, in India, we do not have a wealth or inheritance tax, which can also raise significant revenues. On the expenditure side too, India is a laggard in the international perspective, with low levels of social spending.
The second caveat pertains to the Congress proposal (or whatever is known of it so far). A key stumbling block is the issue of identifying households. The experience with ‘BPL targeting’ has increasingly been acknowledged as a failure in India. It is for this reason that there has been a move away from such an approach to more broad-based approaches: the NREGA relies on self-selection, the Public Distribution System (PDS) uses the ‘exclusion approach’ and covers two-thirds of the rural population after the enactment of the National Food Security Act (NFSA) and mid-day meals are universal.
A third concern pertains to inflation indexing and the likelihood that the value of the transfer will erode over time. For instance, the central government's contribution to elderly pensions has been stuck at Rs 200 per person per month since 2006. When transfers are indexed, it does so only for form’s sake - in Jharkhand the NREGA wage increased by Re 1/day only! A cash transfer programme only makes sense with an accompanying framework to take of inflation.
Are there better ideas on the table? In fact, yes.
The Congress president himself has made one such (welcome) announcement in Raipur recently. He spoke of raising government health spending to 3% of the GDP with a focus on primary healthcare and appointment of more doctors and nurses.
The focus on primary healthcare is worth highlighting. Though health spending has increased marginally in the past few years (it is under 1.5% of GDP), much of the policy focus has been on insurance for tertiary healthcare which almost always involves hospitalisation. This is akin to refusing to treat a wound (provide preventive healthcare), waiting for it to become gangrenous, and when it requires amputation the government steps in (to provide curative healthcare). This is contrary to accepted wisdom that it is best to have a robust primary healthcare system with a focus on preventive care, rather than curative care. This also reduces the cost of healthcare.
Even if the Congress party were interested in a cash transfer-based announcement, there is a more sensible approach. That is to view NYAY as a complement to NREGA: those who can, get work through NREGA and those who cannot work (the elderly, persons with disabilities, pregnant women, etc.), get cash support through NYAY.
This requires scaling up – in terms of coverage and amount – non-contributory social security pensions such as those under the National Social Assistance Programme (NSAP). The NSAP provides pensions to elderly, single women, including widows and persons with disabilities. Pensions are currently insultingly low. The central contribution to them is between Rs 200 and Rs 1,000 per person per month.
The NSAP needs to be universalised so that all elderly, single women and persons with disabilities are covered and the pension amount needs to be increased.
Maternity entitlements is another cash transfer that needs political backing. In 2013, the National Food Security Act (NFSA) made a provision of Rs 6,000 per pregnancy for all women in the unorganised section. Four years later, in 2017, when the PMMVY scheme was finally framed, the statutory provisions were diluted (the amount of the support was reduced to Rs 5,000 and restricted to just the first pregnancy).
In states like Karnataka and Tamil Nadu, maternity entitlements are higher (Rs 12,000-18,000). Yet, the contrast with what women in the organised sector get – six months paid leave – is stark.
Earlier estimates suggest that at Rs 1,000 per person per month, universal pensions and maternity entitlements at Rs 6,000 per child together will cost about 1% of GDP.
If India had a political party truly committed to social democracy, the three proposals mentioned above, along with a proposal to introduce the wealth tax, would be on the political agenda. Instead, many critics of the current government are latching on to NYAY because they welcome any hint of a substantive debate on economic redistribution. The lowered expectations from political parties are part of the lasting damage caused by the current government.
(Reetika Khera is associate professor at the Indian Institute of Management, Ahmedabad. Views are personal.)
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