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Home Articles NYAY Scheme: Does it Work and Reduce Poverty in India?

NYAY Scheme: Does it Work and Reduce Poverty in India?

IndianMoney.com Research Team | Posted On Monday, April 08,2019, 06:20 PM

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NYAY Scheme: Does it Work and Reduce Poverty in India?

 

 

The year 2019 is an election year and the Modi led NDA government had come up with various people friendly announcements in the interim budget in February 2019. To counter this, the Indian National Congress has come up with a scheme which is touted to be similar to universal basic income. If implemented, it would financially support 5 Crore Indian households.

Congress has named this scheme, Nyuntam Aay Yojana or NYAY. Under NYAY, families categorized as below poverty line, would receive monthly aid of Rs 6,000 which amounts to Rs 72,000 a year. The Rahul Gandhi led UPA has promised to implement NYAY, if voted to power in the 2019 general elections.   

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What Exactly Is NYAY Scheme?

Before we proceed to NYAY, let’s first understand what’s universal basic income or UBI. Under universal basic income, periodic cash payments are made to individuals, who do no work. The payouts would be:

  • Unconditional: The UBI is unconditional and varies only with the age.
  • Automatic: Proceeds of the UBI are periodically deposited to the individuals’ bank account.
  • Unchangeable: The UBI does not depend on the individuals’ status of employment. UBI does not increase or decrease.
  • Individual: UBI is deposited to the bank account of individuals and not on the basis of couples and households.
  • Right: Every legal resident of the country receives UBI. Eligibility for receiving UBI is subject only to minimum period of legal residency.   

After understanding what’s UBI, you arrive at the decision that NYAY is nowhere close to UBI. NYAY covers only 5 Crore households of the 130 Crore Indian Population. A UBI scheme must essentially cover all individuals, regardless of their employment status and wealth, while NYAY offers aid only to those below the poverty line. 

As per Randeep Sujrewala, the Congress spokesperson, if UPA is voted to power, then the Government would transfer a flat Rs 6,000 to each family of five (Rs 1,200 per person) which is below the 20th percentile of India’s income distribution. The NYAY scheme is less demanding when it comes to information, as the Government must only identify those families with income less than the threshold to receive the proceeds of the scheme. The Government need not know by how much the family falls short of the threshold.

SEE ALSO: Home Articles Universal Basic Income in India

The INC president had given an example of making each family’s income touch the threshold of Rs 12,000 a month. This sparked major confusion on the scheme. Many felt that NYAY was a top up scheme. If NYAY were a top up scheme, then there would be an incentive problem. There are no incentive problems for families whose income is below the threshold income. The incentive related problems arise for families whose income lies between the threshold and Rs 6,000. To claim benefits of NYAY, many families can be tempted to reduce work to earn an overall income less than the threshold to be eligible to receive the Government transfer of Rs 6,000 a month. This may result in reduction in the overall productivity of the country and can have a direct bearing on the GDP. Later, Randeep Sujrewala clarified that NYAY is not a top up scheme and it transfers a flat Rs 6,000 to families lying in the bottom 20% of India’s income distribution.

Knowing the benefits of NYAY, it is quite obvious to expect fraudulent activities for claiming benefits. The Government must implement a strict law to keep a check on misreporting income related data and must come up with an enforceable penalty and punishment written under the scheme. After all, it is the question of nation’s economy at stake and it is not a joke to play with taxpayer’s money.

How Much Does It Cost To Implement NYAY?

The Congress party has said that it has consulted various global economists while coming up with NYAY scheme. Raghuram Rajan has confirmed that he was consulted by INC to frame NYAY scheme. INC is also reported to have consulted Angus Deaton, British economist who won the noble prize in 2015, and Thomas Piketty, French economist, to blueprint the NYAY scheme.

NYAY, if implemented, is expected to cost at least 1.4% of the total GDP. It is still a big commitment as it would cost about a whopping Rs 3.60 Lakh Crores. The current size of the Indian GDP is estimated to be about Rs 200 Lakh Crores. The Congress party has said that both central and state governments would be responsible for shouldering the burden of Rs 3.60 Lakh Crores for benefits of NYAY scheme reaching beneficiaries. The Congress has said that it would implement NYAY scheme in addition to the existing subsidies and schemes.

SEE ALSO: National Health Insurance Benefits And Plans Online

Is NYAY Scheme Worth It?

To arrive at a decision on NYAY, let’s take a look at implications of the implementation of NYAY on eligible households and the economy:

1) Offering Freebies Makes People Lazy And Makes More People Beggars

If someone is saying no to UBI, then they must also say no to freebies like universal free healthcare. They must also say no to the existing tax breaks and various free of cost facilities. There should be no hypocrisy in this as all freebies are derived out of taxpayers’ money. Implementation of NYAY must be made only on scrapping the existing free facilities to even out the Government expenses.

2) Implementation Of NYAY Causes Inflation

NYAY, if ever implemented, would be the World’s largest cash transfer programme. It is a common inception that implementation of UBI causes inflation, though this is partially true. Studies and experiments on UBI have revealed that inflation would be high for a few days post cash transfer and would get back to normal after some days. This is because entrepreneurs would be able to set up manufacturing bases, with help of cash transfer programmes, to balance supply with need.

3) Men Would Have More Money To Spend On Alcohol

It is quite obvious to expect men, while controlling the wallet, to spend more on alcohol and cigarettes. This would cause more and more people visiting healthcare centers, complaining on alcohol related problems. So, money received through UBI, would be spent on healthcare facilities, thereby negating the benefits of UBI. To avoid this, the Congress party has said that proceeds from NYAY would be transferred to the bank account operated by a woman member of the family. But, men usually overbear women in Indian families and it is to be seen as to how successful the UBI is going to be, if ever implemented. Utilization of funds received under UBI is one way of gauging the success of the scheme.

4) People Will Stop Working

To some extent this is true. Free money makes people lazy. But at the same time, more and more entrepreneurs would be born as they get funds for setting up their enterprises. Teenagers would go back to schools and colleges as UBI meets living expenses of families, which is good in a long term way. It is inevitable that people would stop working as they receive free money, which decreases the overall productivity. This directly impacts GDP. The Government must look at this factor seriously when Implementing NYAY.

SEE ALSO:  Health Insurance Plans

5) Hike In Tax Rates

This is one of the major factors behind people being apprehensive on NYAY. Tax slabs would certainly be hiked if NYAY is to be implemented. To not hike tax rates, the Government must do away with the existing schemes. Instead of coming up with new schemes, the Government must combine the existing schemes and have just one scheme in place.

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