Congress, this week, proposed the transfer of Rs 6,000 a month into the bank accounts of 50 million families comprising the poorest of the poor with its Rs 3.6 lakh crore minimum income scheme, Nyuntam Aay Yojana (NYAY), if voted into power.
The only response to this proposed solution to India’s decades-old challenge of ‘employed poverty’ can be Albert Einstein’s quip to his students celebrating an examination paper he had prepared that had the same questions as the previous exam: careful, the answers are different this year.
Having crossed the $2,000 per-capita income mark, Indians are now approaching the crucial ‘tipping point’ for many countries of $4,000 per capita. Which is why one needs to be cautious about the proposed annual transfer of Rs 72,000 for three reasons: one, financing this will destroy India’s hard-won macroeconomic stability and convert its high growth, low inflation economy to a low growth, high inflation one; two, since India’s problem is not unemployment but employed poverty, NYAY will sabotage the country’s current trajectory of productivity improvement; three, the notion that India’s poor want to replace ‘self-exploitation’ with ‘income without work’ is patronising, feudal and out-of-touch with aspirations.
The fiscal math doesn’t add up. Rs 6,000 a month to the 20% of India’s poorest families will cost between Rs 3.6 lakh crore and Rs 7.2 lakh crore a year. At worst, this amounts to 3.4% of India’s GDP, 2.5 times the total Budget of 2019-20, and will explode the fiscal deficit to 6.8% from the current 3.4%. The expenditure proposed is 2.2 times the budget of all centrally sponsored schemes and is more than the combined budgets of Gujarat, Karnataka, Madhya Pradesh and Rajasthan.
It’s unclear whether defining poverty at per-capita GDP levels is prudent, sustainable or scalable. But NYAY does assume afree ride that doesn’t exist in economics. Instead, it can only recalibrate inflation expectations, and blunt growth. The second problem is the diagnosis and prescription itself. India’s official unemployment rate has hovered between 3% and 7% since 1947, since the poor can’t afford to be unemployed. Consequently, despite not earning living wages because of low productivity, they have been designated as being ‘self-employed’ or ‘farmers’.
Poverty eradication needs moving Indians to more productive sectors. 50% of our labour force in agriculture generates only 14% of GDP, while 0.7% of our labour force in IT generates 8% of GDP. It needs movement towards more productive geographies — Karnataka’s GDP is equal to Uttar Pradesh’s with 30% of the latter’s population, Maharashtra’s GDP is equal to Pakistan’s with 50% of the neighbouring country’s population, and Britain’s GDP is equal to India with 5% of the latter’s population.
It also needs to move to more productive firms (manufacturing firms in the 10th percentile category are 24 times bigger than those in the 90th), and more productive skills (this year, the top 10% industrial training institute graduates will get better starting salaries than the bottom 10% of engineering graduates).
These four transitions are better accomplished by formalisation, urbanisation, industrialisation, financialisation, fixing government schools, exploring apprenticeships and reducing the ‘regulatory cholesterol’ that include 60,000 compliances, 3,600 filings and 5,000 changes every year for employers.
Then there’s higher aspirations. India’s labour market ‘shock-absorbers’ of informal self-employment and farming no longer work. An overwhelming number of Indians born after 1991are unwilling to accept self-exploitation and have expanded their needs and wants. Feudalism depends on sustained self-exploitation and dreads the positive long-term consequences of human agency.
People today recognise that politicians are not ‘mai-baaps’ and subsidies are not gifts. More importantly, Indians believe they derive many valuable things from work other than income — identity, purpose, social capital, self-esteem, confidence and skills.
In 1934, entrepreneur and future West Bengal finance minister Nalini Ranjan Sarkar, who was instrumental in setting up the Indian Institutes of Technology (IITs), had stated, “The great need of the moment is a policy of action that will facilitate the evolution towards a healthy and stable economic system. I feel there is a limit to the sufferings that will be borne by a traditionally patient people.” He was both wrong and right.
Wrong because Indians remained patient with poverty for far too long. But Sarkar was right because a healthy and stable economic system rewards human agency, needs macroeconomic stability and recognises that there is something fundamentally feudal in suggesting income without work. Putting India’s poverty in the dustbin of history needs productive work for — and from — every adult citizen. Not the patronising feudalism of income without work that Congress has proposed as an election sop.
The writer is with TeamLease Services
View: Congress’ Nyuntam Aay Yojana simply doesn’t work – Economic Times