Poverty & Inequality

NYAY e-Symposium: Doing justice to NYAY

  • Blog Post Date 01 May, 2019
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Jean Drèze

Ranchi University; Delhi School of Economics

jean@econdse.org

Jean Drèze (Visiting Professor, Ranchi University) discusses the role of NYAY in the larger context of social security in India, and proposes some tentative principles for the scheme.

 

Here is a scary but plausible scenario for NYAY. Soon after the formation of 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 Rs. 6,000 per month each. The committee will recommend some sort of scoring system based on household characteristics, or perhaps some combination of inclusion and exclusion criteria. To implement this, a Socio-Economic Census (SEC) will be conducted soon after the Population Census of 2021 – much as with the Socio-Economic and Caste Census (SECC) 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.1 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. Meanwhile, inflation will rise because the government does not have the courage to tax the rich to finance NYAY and resorts to deficit financing instead. Five years down the line, in 2024, the Congress will pay the price for this chaos in the next elections.

This is not, of course, the only possible scenario. And even in this pessimistic scenario, a lot of poor people will live better and more secure lives. If I bring it up, it is just to illustrate the fact that the operational aspects of NYAY are not an incidental matter, as some proponents of it seem to suggest. The project could stand or fall on operational issues.

I am also drawing attention to an issue that has received little attention so far: 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. To illustrate, a household lucky enough to get a full 100 days of MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) employment over the year would earn about Rs. 20,000 – just over one fourth of the annual amount of Rs. 72,000 promised under NYAY.2 Shocking as it may sound, Rs. 6,000 per month is the sort of salary that many informal-sector workers earn in the poorer states – say chowkidars3 or domestic workers. People struggle, bribe, cheat and fight for jobs of this kind. Selecting 20% of households for an unconditional monthly allowance of Rs. 6,000 is likely to be a chaotic and divisive exercise.

In this post, I shall propose some tentative principles for NYAY (leaving budget matters aside), by way of enlarging the debate on this important subject. Before that, it may be useful to place NYAY in the larger context of social security in India. 

Role of NYAY

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 (NFSA). MNREGA 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 Rs. 6,000 per child are a legal right of all Indian women under the NFSA. Most children receive nutrition supplements and health services under the Midday Meal Scheme and the Integrated Child Development Services (ICDS). Elementary education is free and compulsory under the Right to Education Act. And to some extent at least, everyone has access to free healthcare facilities, recently supplemented – for about 40% of the population – by health insurance under Ayushman Bharat.

Incidentally, most of these provisions are relatively recent, and most of them have materialised after intense debates, if not battles, related to electoral politics. But that is another story.

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. MNREGA 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: MNREGA wage rates are below the minimum wage in many states, PMMVY benefits have been reduced (illegally again) to Rs. 5,000 per child, the central government’s contribution to social security pensions have stagnated at a measly Rs. 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. This is all the more so as Dr. Manmohan Singh and Ms. Sonia Gandhi inaugurated the odd idea, in 2004, that ruling parties should redeem – or at least strive to redeem – their electoral promises (MNREGA, for one, would never have seen the light of day otherwise). The Congress party, of course, may or may not lead the next government. But if it does, chances are that a serious effort will be made to put NYAY on track.

Having said this, 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

Let me now propose a few basic principles for NYAY. Many of them are inspired from India’s recent experience with other social security schemes, notably MNREGA, the PDS, and social security pensions.For convenience, I shall use a prescriptive tone, but the intention is just to float some ideas for discussion.

First, NYAY is best recognised for what it is: a massive pension scheme. The initial idea was to guarantee a minimum income (Rs. 12,000 per month according to Mr. 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 Rs. 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. The term ‘income guarantee’ is misleading unless and until a reliable system is devised to ensure that most low-income households are able to benefit from this pension scheme.

Second, the ‘6x20’ formula (Rs. 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. In fact, there is a case for exploring several variants of the 6x20 formula.

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 Rs. 6,000 per month. This works out to Rs. 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 Rs. 1,200 per month. With the same budget, NYAY could cover 50 million household pensions of Rs. 6,000 per month, or 250 million individual pensions of Rs. 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. In principle, one could also consider different pension rates for different types of households or individuals. If so, however, it will be important to remember the KISS principle (“keep it simple, sweetie”). This is because the success of this sort of scheme depends a great deal on people understanding the rules – eligibility criteria, application process, scale of benefits, and so on.

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. Further, NSAP covers only 33 million pensioners – barely one fourth of the reference group.5 Under NYAY, social security pensions for the elderly, widows, and disabled persons could be universalised at an enhanced rate of Rs. 1,200 per month, plus state supplements. Better perhaps, the coverage could be ‘quasi-universal’: universal subject to well-defined exclusion criteria.6 This could be done relatively easily and quickly: NSAP has a good record; it is largely a matter of expanding the scheme.

Fifth, on a similar note, NYAY could cover enhanced maternity benefits of Rs. 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). No doubt, the question will be raised whether this might hamper the drive towards lower fertility rates. But fertility rates are declining steadily, and in fact, a simple projection from the latest estimates suggests that India has already – or almost – reached 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 concern, compared with the need to protect the well-being and rights of all 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 bear a heavy burden of social marginalisation over centuries, and live in appalling poverty. They are already identified to a large extent, in the population census or elsewhere. In their case, perhaps there should be no exclusion criteria at all – the smallest complication in eligibility conditions could be a major hassle for them. Jharkhand already has a pension scheme for all PVTGs, which seems to help them a lot (Drèze 2018a; Somanchi, forthcoming). The rehabilitation of manual scavengers is an unresolved challenge that has haunted India for decades; NYAY may be the chance to cross that bridge at long last.

Seventh, a reasonable proportion of NYAY pensions could be allocated at the discretion of gram panchayats (village councils) and gram sabhas (village assemblies).  Centralised identification of poor households is bound to involve substantial exclusion errors. Further, the economic status of a household varies over time, and it is very difficult for centralised databases to keep up with these changes. Village communities tend to know who are the poorest households or persons in the neighbourhood. 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 (although gram panchayats could certainly help to identify pre-specified categories such as the elderly and pregnant women). However, there is a case for gram panchayats and gram sabhas having discretion over at least a small share of NYAY pensions, to reduce exclusion errors. This would also help to provide some insurance against contingencies such as the sudden death of a family’s sole bread-winner.

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 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.7 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, access to public services, and so on. Interestingly, “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.8 These figures, combined with population data from the 2011 Census, imply that 90% of poor people in India live in rural areas. In urban areas, NYAY pensions should focus mainly on slums, the homeless, and other well-defined vulnerable groups such as manual scavengers.

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. Legal entitlements also help poor people to get their due, in a system that gives them little power. 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.9 Without that, it will be easy for the government to let the real value of cash transfers shrink over time, as happened with NSAP pensions.

Finally, the technology of cash transfers needs careful thought. Despite tall claims of financial inclusion from the government, India still lacks a reliable and user-friendly infrastructure for cash transfers in rural areas. In the last few years, several attempts to replace PDS food rations with cash transfers have had sobering results, partly due to defective payment technologies. The ‘DBT for food subsidy’ experiment in Jharkhand is a prime example (Drèze 2018b). Even in favourable settings such as Puducherry and Chandigarh, these pilots have run into serious trouble (J-PAL, 2016; Muralidharan et al. 2017). The Aadhaar Payment Bridge System (APBS) is a particularly problematic technology (Dhorajiwala et al. 2019). The Aadhaar-enabled Payment System (AePS) also has high failure rates (Balasubramanian et al. 2019). The last thing NYAY needs is a technological mess that compounds all the other risks involved.

These 10 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 (elderly persons, widows, pregnant women, PVTGs, and so on) are likely to add up to something like 10-12% of the population – about half of NYAY’s proposed coverage of 20%.10 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 and consolidating schemes that are already in place. Politically, this first step is likely to enthuse the public, and this is important for the entire project to succeed.

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 operationalise the 6x20 formula will not do. 

This post is part of I4I's e-Symposium on NYAY: https://www.ideasforindia.in/topics/poverty-inequality/decoding-congress-nyay.html

Notes:

  1. I am referring here to the minimum wage for agricultural labour. The population-weighted average of state-specific minimum wages for agricultural labour is around Rs. 250 per day. Assuming 25 working days per month, full-time employment at that rate would fetch Rs. 6,250 per month.
  2. The population-weighted average of 2019-20 MNREGA wages rates is just below Rs. 200 per day.
  3. Chowkidar is Hindi for guard/watchman.
  4. See Drèze (2017), Drèze and Khera (2017), and the literature cited there. For some related thoughts on NYAY, see Drèze (2019), Khera (2019), and Mundle (2019). On the financing issue, not addressed here, a convincing case has been made that the rich should foot the bill (Bharti and Chancel 2019). Indeed, the rich in India are pampered to no end: India has no inheritance tax, no wealth tax, plenty of tax exemptions, all kinds of regressive subsidies, and a marginal income-tax rate of just 30% at the top (compared with 40 to 60% in most countries of western Europe and north America including the United States).
  5. Official figures from http://nsap.nic.in/ (accessed 25 April 2019). According to the same source, another 4.5 million individuals are covered by state-specific pension schemes.
  6. This approach is discussed Drèze and Khera (2010), along with other possible uses of inclusion and exclusion criteria; see also Drèze et al. (2019), in the context of the NFSA. Just to prevent a possible misunderstanding of the opening paragraph, I am not disputing the possible usefulness of a Socio-Economic Census for the purpose of applying inclusion and exclusion criteria.
  7. This is a striking feature of the 2011-12 poverty estimates calculated by the Rangarajan expert group. In fact, according to these estimates, urban poverty was higher than rural poverty in half of India’s major states in 2011-12. A similar pattern applies to 2004-5 poverty estimates based on the Lakdawala committee report, also based on NSS data. For further discussion, see Deaton and Drèze (2014) and Rangarajan and Mahendra Dev (2015).
  8. Unpublished estimates from the Oxford Poverty and Human Development Initiative (OPHI), kindly shared by Sabina Alkire. Earlier estimates for 2011-12 point to the same conclusion: about 90% of poor people in India live in rural areas. See OPHI (2019).
  9. This could be done, for instance, by indexing pension amounts on nominal GDP (gross domestic product). For a similar proposal, in the context of universal basic income (UBI), see Ray (2016).
  10. The large groups in the list are widows and the elderly. These account for about 10% of the population, according to 2011 Census data. But if urban areas (except slums etc.) are excluded, this target group would reduce to something like 8% of the population. If exclusion criteria apply, even 8% would be on the high side. With a birth rate of 20 per 1,000, and 12-months individual NYAY pensions for all pregnant women, another 2% of the population would come under NYAY, but this is on the high side again because some women already receive maternity benefits in the formal sector (also, the birth rate is steadily declining). Other priority groups mentioned in this post are unlikely to add up to more than 2% of the population. 

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