Congress’ NYAY scheme – recipe for fiscal disaster

Prior to Modi taking charge in 2014, the grand old party viz. Congress which ruled the country for over five decades, had institutionalized the culture of giving subsidies/doles, loan waivers, free power, job guarantee [in rural areas] and so on.

It had also achieved the dubious distinction of institutionalizing corruption and leakages from the budget earmarked for welfare schemes. With a major slice of funds pilfered on the way and not reaching the intended beneficiaries, majority of the poor remained in a state of poverty and deprivation. This also left little money for undertaking development projects by the state.

So, the economy was caught in a vicious trap of doles-corruption-slow growth with no space whatsoever for increasing job opportunities and income of the people including majority of the poor.

Modi changed the narrative with a pledge to empower the poor, create jobs and increase their income even while continuing with subsidies – even extending their coverage to include more poor. However, unlike the UPA – regime led by Congress, he has ensured that the benefit of subsidies reached the beneficiaries in full.

The government is also committed to doubling farmers’ income and has taken a number of steps to achieve the goal. Besides, under PM Kisan Samman Nidhi – announced in 2019-20 budget – it gives Rs 6000/- per year to small and marginal farmers [land holding up to 2 hectare] which benefits a total of 120 million farmers.

With general elections less than a month away, keeping a hawkish eye on the seat of power, Congress has resurrected its idea of doles to the poor. On March 25, 2019, Rahul Gandhi has promised to give Rs 72,000/- per annum to 20% poorest of the poor.

The party is targeting a total of 50 million families [or 250 million persons assuming 5 persons per family] to ensure that each family is assured of monthly income of Rs 12,000/-. A family earning less than this threshold will get direct benefit transfer [DBT] of an amount equal to the shortfall. For instance, if its monthly earning is Rs 6000/-, it will get DBT of Rs 6,000/-.

The amount is too big an allurement for the poor [this is 12 times a poor farmer gets under PM-KISAN]. Congress wants to use it to swing the election results in favor.  Has it thought through the financial implications?

Giving income support to 50 million families @Rs 72,000/- per annum per family will cost the exchequer about Rs 360,000 crore annually. This is a huge number accounting for about 2% of GDP [gross domestic product]. But, the actual requirements could be many times more if the objective of guaranteeing Rs 12,000/- per month to all those earning less this amount is to be realized.

In 2014, a committee under Dr C Rangarajan had identified a poor person as one who earns less than Rs 32 per day or Rs 1000/- per month in rural areas and Rs 47 per day or about Rs 1500/- per month in urban areas. To reach the threshold set by Rahul Gandhi viz. Rs 12,000/-, the rural poor should get Rs 11,000/- a month whereas urban poor will be eligible for Rs 10,500/- per month.

Further, the committee had estimated the number of poor persons to be about 30% of the population. On current population of over 1300 million, this would be 400 million of which 300 million are rural poor and 100 million are urban poor. This translates to a total of 80 million poor families [5 persons per family] including 60 million in rural areas and 20 million in urban areas.

For income support to be ‘equitable’ and ‘non-discriminatory’, it is necessary that all 80 million poor families are covered. Any exclusion  [under Congress plan, 30 million poor families will be excluded] would lead to an abhorrent scenario whereby a person getting DBT will end up having a monthly income of Rs 12,000/- per month even as another who gets excluded will continue to live with a measly Rs 1,000/- per month. This is totally illogical and unacceptable.

Therefore, equity and logic requires that all 80 million poor families get DBT. @Rs 11,000/- per month for 60 million rural and @Rs 10,500/- per month for 20 million urban, this would entail a mammoth outgo of Rs 1044,000 crore annually. This represents close to 6% of GDP. The ball does not stop here.

Rahul Gandhi considers every family earning less than Rs 12,000/- per month as poor. All such families should be helped to reach this income level. This means that all those earning more than Rs 1000/1500 – per month but less than Rs 12,000/- are eligible for DBT. Taking about 100 million persons in this income range, @Rs 6000/- per month, this would require Rs 720,000 crore.

Overall, the scheme will cost a mammoth Rs 1764,000 crore annually. This is about 10% of GDP and nearly 2/3rd of the total budget of union government [2019-20]. This will lead to fiscal disaster. It can’t be averted even if the centre withdraws all existing subsidies/support [food, fertilizers, petroleum, education, PM-KISAN, Ayushman Bharat etc] worth about Rs 530,000 crore annually.

Worse still, this will create a strong disincentive for majority of the families 180 million [3/4th of total] not to work. When, sitting at home, a person gets Rs 12,000/- a month, why would he work? Rahul says the moment a person crosses this threshold, he won’t be eligible. But, why would he attempt to increase his earning? This will bring all economic activity to a grinding halt.

For over 5 decades, Congress nurtured the cult of ‘doles-corruption’. If, it comes to power now, this cult will reach a ‘NADIR’ with implementation of the scheme. India needs to be saved from such a horrendous scenario. That will happen only if the public rejects this party in the coming elections – lock, stock and barrel.

 

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