NYAY’s impact could be much wider than expected
Many of these could significantly alter fault lines between the poorest and the not-so poor, rather than the richest. Inability to appreciate similar dynamics played a role in the economic headwinds, which the UPA 2 faced after its dream run in the first term.Updated: Apr 22, 2019 07:24 IST
Giving Rs 72000 per year to India’s poorest 20% households under the Nyuntam Aay Yojana (NYAY) is the biggest poll promise of the Congress in these elections.
The party has been peddling two kinds of justifications for it.
First, the scheme has been described as some sort of last-mile assault on poverty in India. The country does not have updated poverty numbers after 2011-12. It is likely that the new poverty ratio will not be far from the 20% mark. So theoretically, NYAY can lead to complete eradication of poverty. This, however, is like keeping a patient alive on life support, and not comparable to poverty eradication through sustained income opportunities.
The second justification, and this has gained more traction recently, is to sell NYAY as a stimulus to the economy, which has been subject to deflationary shocks through policies such as demonetisation. Congress president Rahul Gandhi and other leaders have been talking about NYAY being a policy to re-monetise the economy. In principle, there is nothing wrong with this. Counter cyclical measures are an integral part of economic policy choices. But what the Congress does not seem to realise is that even if it is elected, a full-scale implementation of NYAY will come a good four to five years after demonetisation was rolled out. In other words, it’s utility as an antidote to the liquidity squeeze, which demonetisation created, will be almost negligible.
This brings up the question whether the party has a long-term vision about what it wants to achieve with NYAY. For example, sustained payments of Rs 72,000 year to the poorest (who are more likely to be from socially deprived groups) could fundamentally alter the socio-economic balance of power in villages. It would not be a bad thing per se but it will cause significant disruption in the short to medium term. Such payments can also lead to enhanced demand for commodities such as pulses, which if not handled properly can lead to high inflation.
The short point is a scheme of NYAY’s magnitude and design will have a much wider impact than just bringing back liquidity in the economy through purchases by the poorest. Many of these could significantly alter fault lines between the poorest and the not-so poor, rather than the richest. Inability to appreciate similar dynamics played a role in the economic headwinds, which the UPA 2 faced after its dream run in the first term.