9 min read.Updated: 01 May 2019, 10:07 AM ISTJean Drèze
Initially, NYAY should target 10-12% of the population by expanding existing schemes
Here is a scary but plausible scenario for the Nyuntam Aay Yojana (NYAY). If there’s a Congress-led coalition government at the centre later this year, a committee will be asked to suggest ways of identifying the poorest 20% households for the purpose of giving them ₹6,000 per month each.
This committee will recommend some sort of scoring system based on household characteristics. To implement this, a Socio-Economic Census will be conducted soon after the Census 2021—much as with the Socio-Economic and Caste Census of 2011, but with “caste" discreetly dropped since nothing came of it last time.
The entire exercise will create a new class of households that enjoy a monthly allowance roughly equivalent to full-time employment at the minimum wage. Some of them will come from highly vulnerable groups, but others not, because of the unreliable nature of this identification exercise. For the same reason, many poor households will be left out.
Discontent will spread, tensions will simmer, and the whole scheme will be considered by many as a gross injustice —anyay rather than nyay. Five years down the line, in 2024, the Congress will pay the price for this chaos in the next genera elections.
This is not, of course, the only possible scenario. And even in this pessimistic scenario, many poor people will live better lives.
If I bring it up, it is to illustrate the fact that the operational aspects of NYAY are not an incidental matter, as some proponents of the minimum income guarantee scheme seem to suggest.
I am also drawing attention to the potential “divisiveness" of NYAY. This concern arises from a combination of relatively low coverage (20% of the population) and large benefits—many times larger than anything being provided to poor people today under any scheme. Shocking as it may sound, ₹6,000 per month is the sort of salary that many informal-sector workers earn in the poorer states—say chowkidars (watchmen) or domestic workers. People struggle, bribe, cheat and fight for jobs of this kind.
Selecting 20% of households for an unconditional monthly allowance of ₹6,000 is likely to be a chaotic and divisive exercise.
On the face of it, India already has the basic foundations of a social security system. The public distribution system (PDS) provides a modicum of food and economic security to 67% of the population under the National Food Security Act, 2013. The Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA) gives every rural household an opportunity to earn a basic wage on local public works, for up to 100 days in the year.
Social security pensions are in place for the elderly, widows and disabled persons. Maternity benefits of ₹6,000 per child are a legal right of all Indian women under the National Food Security Act. Most children receive nutrition supplements and health services under the Mid Day Meal Scheme and the Integrated Child Development Services (ICDS).
In practice, this safety net is still rife with holes. The PDS, despite considerable improvement in recent years, remains prone to leakages and exclusion errors. MGNREGA employment is far from “guaranteed", even to those who make a formal application for it. The coverage of social security pensions is still very patchy in many states. Maternity benefits have been illegally restricted, under the Pradhan Mantri Matru Vandana Yojana (PMMVY), to the first living child.
Further, all these schemes have low benefits: MGNREGA wage rates are below the minimum wage in many states; PMMVY benefits have been reduced (illegally again) to ₹5,000 per child; the central government’s contribution to social security pensions has stagnated at a measly ₹200 per month for more than 12 years, and so on.
Against this background, the NYAY promise deserves serious consideration, as a means of plugging the holes and enhancing the benefits.
However, NYAY is both an opportunity and a threat. A well-planned NYAY, integrated with other foundations of India’s social security system, could be the next leap forward. But if NYAY displaces or undermines the existing foundations of social security without putting something better in place, it could also turn into a bull in the china shop.
Ten tips for Nyay
For convenience, I shall use a prescriptive tone, but the intention is just to float some ideas for discussion.
FIRST, NYAY is best recognized for what it is: a massive pension scheme. The initial idea was to guarantee a minimum income ( ₹12,000 per month according to Congress president Rahul Gandhi) by filling the gap, household-wise, between minimum income and actual income. This “top-up" approach, however, is impractical. On 25 March 2019, it gave way to the “flat-rate" approach, where all recipients get the same unconditional benefit of ₹6,000 per month. In that case, NYAY might as well be seen as a pension scheme—taking the word “pension" in the broad sense of a basic income allowance, not necessarily restricted to those who are unable to work.
SECOND, the “6x20" formula ( ₹6,000 a month for 20% of the population) should not be treated as a sacrosanct prescription, but as a benchmark for the commitment being made to this pension scheme. If something roughly equivalent but more effective is possible, it should be considered.
THIRD, consideration should also be given to the possibility of individual pensions instead of, or along with, household pensions. As things stand, NYAY is taken to involve household pensions of ₹6,000 per month. This works out to ₹1,200 per month in per-capita terms, on average, assuming a household size of five. As an initial benchmark, individual pensions could be pegged at ₹1,200 per month. With the same budget, NYAY could cover 50 million household pensions of ₹6,000 per month, or 250 million individual pensions of ₹1,200 per month, or any other combination of household and individual pensions that covers about 20% of the population. This would help to depart from the rigidity of the 6x20 formula.
FOURTH, the first call on individual NYAY pensions should go to the elderly, widows and disabled persons. These individuals tend to live very deprived lives, not just among poor households. India already has a pension scheme for them, the National Social Assistance Programme (NSAP). As mentioned earlier, however, the central government contribution to NSAP pensions is abysmally low. Many states supplement this from their own funds, but even the supplement-inclusive amounts are small.
Moreover, NSAP covers only 33 million pensioners—barely one fourth of the reference group. Under NYAY, social security pensions for the elderly, widows and disabled persons could be universalized at an enhanced rate of ₹1,200 per month, plus state supplements. Better perhaps, the coverage could be “quasi-universal": universal subject to well-defined exclusion criteria. NSAP has a good record, this is largely a matter of expanding the scheme.
FIFTH, on a similar note, NYAY could cover enhanced maternity benefits of ₹1,200 per month for six months, or even 12 months, for all pregnant women (except those already receiving maternity benefits in the formal sector). One possible concern is that this might hamper the drive towards lower fertility rates. But fertility rates are declining steadily, and India is now very close to the replacement level of 2.1 children per woman.
A minor reduction in the rate of fertility decline, if it happens at all, is perhaps not a major issue, compared with the need to protect the well-being of mothers and children. States like Tamil Nadu are already giving maternity benefits larger than what is being proposed here, and no spike in fertility has been reported there.
SIXTH, NYAY should also provide for automatic inclusion of some highly vulnerable groups such as particularly vulnerable tribal groups (PVTGs), nomadic tribes and manual scavengers. These groups are already identified to a large extent, in the population census or elsewhere. Jharkhand already has a pension scheme for all PVTGs, which seems to help them a lot. The rehabilitation of manual scavengers is an unresolved challenge that has haunted India for decades. NYAY may be the chance to cross that bridge.
SEVENTH, a reasonable proportion of NYAY pensions could be allocated at the discretion of gram panchayats and gram sabhas. Centralized identification of poor households is bound to involve substantial exclusion errors. Further, the economic status of a household varies over time, and it is difficult for centralized databases to keep up. Community identification, of course, raises its own problems, including the possibility of corruption and conflict. Leaving the allocation of all or most NYAY pensions to the discretion of gram panchayats and gram sabhas would probably be a mistake. However, there is a case for their having discretion over at least a small share of NYAY pensions, to reduce exclusion errors.
EIGHTH, NYAY pensions should be heavily concentrated in rural areas. The reason is that living conditions and economic insecurity are generally much worse in rural areas than urban areas. This is not always evident from, say, National Sample Survey (NSS) data on per-capita expenditure. Indeed, according to some NSS-based poverty estimates, urban poverty is as high as rural poverty in many states.
This rural-urban comparison, however, is fraught with problems, including price-index issues and the difficulty of accounting for differences in living environment, social infrastructure, and so on.
“Multi-dimensional poverty" estimates, based on a direct assessment of living conditions, point to a much sharper rural-urban contrast. For instance, the estimated multi-dimensional poverty headcount was as high as 36.5% in rural India in 2015-16, compared with just 9% in urban India. These figures imply that 90% of poor people in India live in rural areas.
NINTH, NYAY should begin as a scheme and then move towards a legal framework, if it works reasonably well. Without a legal framework, the scheme could prove short-lived. The law should provide for indexation of NYAY pension amounts on the price level, or even better, for some increase in the real value of NYAY pensions over time.
FINALLY, the technology of cash transfers needs careful thought. Despite tall claims of financial inclusion, India still lacks a reliable and user-friendly infrastructure for cash transfers in rural areas. Several attempts to replace PDS food rations with cash transfers in recent years have had sobering results, partly due to defective payment systems. The Aadhaar Payment Bridge System is a particularly problematic technology.
The last thing NYAY needs is a technological mess that compounds all the other risks involved.
These ten suggestions do not add up to a clear plan for NYAY. They would, however, make it possible to redeem about half of NYAY’s promise within a couple of years, in a fairly safe and appealing manner. What I have in mind is that the initial target groups I have proposed are likely to add up to something like 10-12% of the population—about half of NYAY’s proposed coverage of 20%.
Covering them as a “first step" would have the great advantage of avoiding divisiveness, and indeed, creating a broad constituency for NYAY: a large majority of households would have a stake in it, as potential recipients of old-age pensions and maternity benefits. Further, the operational challenge would be much reduced, since it is largely a matter of expanding schemes that are already in place.
The other half of NYAY I shall leave, for now, to the imagination of the reader and future commentators. This is not to say that the first step should be taken without being clear about the next one. NYAY will need an end-to-end roadmap before it is launched. That, however, is likely to require a participatory consultation process—not restricted to economists—over a period of time. Forming an expert committee to operationalize the 6x20 formula will not do.
The author is Visiting Professor at the Department of Economics, Ranchi University. Reprinted with permission from Ideas for India, an economics and policy portal. For the full version, click here.
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