Is NYAY the Congress’s Brahmastra?

Inspired by the Universal Basic Income (UBI) scheme, proposed by Chief Economic Advisor, Arvind Subramanian’s in his Economic Survey report, of 2017, Congress President, Rahul Gandhi, announced the NYAY (Nyuntam Aay Yojana) or "Minimum income Plan” recently. Targeted at the bottom 20% of Indian population - consisting of 5 crore families or about 25 crore people - Rahul called it a final assault on poverty. The scheme envisages a Direct Benefit Transfer (DBT) of Rs 6000 to each beneficiary’s family, per month (Rs 72000 per annum), which is 12 times higher & hence more enticing when pitched against the PM Kisan scheme, launched by the ruling BJP, that promises Rs 6000, per annum, to land owning farmers.

The Competing Poll narratives

Congress called the scheme NYAY (Justice in Hindi & hence electorally appealing) & plans to run a “Aay pe Charcha” (Discussion on income) thereby cheekily attacking Modi’s erstwhile “Chai pe Charcha" (discussion over tea), launched as a counter, in 2014, to Congress's Mani Shankar Aiyer's "Chaiwala" jibe, at the then Prime Ministerial Candidate, Narendra Modi; the ruling BJP, meanwhile, rubbished it as a poll gimmick with the Finance Minister, Arun Jaitley, concluding that the Congress cannot lure the electorate with a “bluff announcement” when the BJP is already giving 1.06 lakh rupees per family (See Table attached); Jaitley's assertion, if true, begs the question: If so, why did the BJP not declare to the world that India has eliminated poverty?

Items	Amounts(Cr.)
Total Payments from 55 Ministries to Bank Accounts  under various schemes	180000
Food Subsidy	184000
Fertilizer Subsidy	75000
PM Kisan Samman Nidhi Payments for Income Support	75000
Ayushman Bharat Subsidy hospitalization for 50 crore	20000
Total	534000
Per Capita over 5 crore families (Rupees)	106800

Arun Jaitley, obviously, is economical on truth here; the schemes run by the 55 ministries include pensions, LPG subsidy, scholarships for domestic & foreign students etc. who might not necessarily be in the bottom 20% of the population. Likewise, The National Food Security Bill, 2013, promises food subsidy to 75% of the population in rural & 50% in urban averaging out to about 67% of the population while NYAY targets only the bottom 20% of population; the food subsidy of 1.84 lakh crores listed in the table above is spread over 67% of the population. Similarly, the fertilizer subsidy is transferred to producers & not customers.

Former Finance Minister, P Chidambaram & Praveen Chakravarty, Chairman, Data Analytics department of the Congress, while addressing the media, countered the BJP’s narrative by maintaining that NYAY would not touch the existing merit subsidies.

A poll, conducted by News X, revealed that while the Rafale issue is not gaining traction for the congress (mere 0.3% support), the NYAY scheme has given it an opening  with about 11% of the electorate enthused by the same; the BJP leads on "National security related issues" with about 35% support. Therefore, during the remaining period of the campaign, expect the BJP to constantly hark back on “National security”- eulogize Uri surgical strike on land, Balakot revenge strike on air & ability to strike spy satellites in space while the Congress would focus on bread & butter issues of farmer distress, unemployment, job losses, & Minimum Income guarantee.

India has a population of 137 crores & an electorate of 88 crores, in the 2019, general elections; 25 crores or about 18% of the population is a large base with the potential to swing elections. While the BJP is targeting 12 crore farmers, with the PM Kisan scheme, only 2.97 crore farmers – 1/3^rd of whom are from the critical state of UP - have received the first installment of Rs 2000/-, as per an Economic Times report, on 29^th May, 2019; likewise, while the health scheme - Ayushman Bharat - is meant to target 50 crore people, only 8.9 lakh people have availed of the scheme as per The Hindu Business Line article published on Jan 20^th 2019. Hence the NYAY scheme, if communicated well by the Congress, would help in making the electoral battle more even ended & hence exciting; the scathing statements issued by the incumbent Niti Ayog chief, Rajiv Kumar or the open-ed by the former Chief, Arvind Panagariya, betrays the BJP’s nervousness.

The Mathematics Behind the Scheme

The Tendulkar Committee recognized 22% Indians – or about 27 crore of population - as “Below Poverty Line” stipulating a benchmark daily per capita expenditure of Rs 27 in rural & Rs 33 in urban; faced with a backlash, the govt. appointed the Rangarajan Committee which raised the limits to Rs 32 & Rs 47 respectively & estimated 30% Indians – 36.3 crore Indians in 2011-12 to be BPL - but the NDA govt. rejected the report. Perhaps, the Congress, controversially, assumes poverty to have reduced to 20% during the last 5 years of the NDA regime & is targeting them under the scheme.

The scheme has attracted the following criticism:

(a)How will the scheme target the beneficiaries when India lacks household level income data? Praveen Chakravarthy, said that NYAY shall use the data sets available with the govt. including the Social-economic caste Census 2011, NSSO Household date etc.; the same data sets were, incidentally, used by the BJP govt. to  identify beneficiaries’ for the PM Kisan & Ayushman Bharat schemes.

 (b)Isn’t the spent of 3.6 lakh crores, annually, on NYAY fiscally imprudent?

Praveen has argued that Indian GDP is about 210 lakh crores & 3.6 lakh crores is about 1.7% of GDP; the combined budget of state & centre is about 60 lakh crores annually & 3.6 lakh crores is thus about 6% of the overall budget & hence feasible; willy-nilly he is proposing burden sharing by the centre & the state in a 70%: 30% ratio & that, perhaps, explains why he suggested that the cost of the scheme, would be 1.2% of GDP during the press conference. If no subsidies are touched, then fiscal deficit(FD) would increase from 3.4% to 4.6%; pruning of "demerit subsidies" is therefore desirable..

There appear other alternatives; 
Alternative 1: Former Finance Minister, P Chidambaram, argued that the nominal rate of GDP growth in India is 12% (perhaps he assumed 7-8% real GDP growth + 4-5% inflation) which means that Indian GDP shall be 315 lakh crore by 2023 & revenue growth at 18% means the combined budget of the state & centre would nearly double to 116 lakh crores during the same 5 year period; hence the scheme is fiscally prudent. Of the total 2019-20 national budget of 27.32 lakh crores, revenue receipts are 22.62 lakh crores (tax revenues: 17.07 lakhs & non tax revenues 5.54 lakh crores). If tax revenues grow by even 15% the incremental tax revenues for 2020-21 is 2.55 lakh crores & 2.94 lakh crores in 2021-22. In other words incremental tax revenues, over 2 years at 5.49 lakh crores (2.55+2.94) alone can fund the scheme. 

Alternative 2: Indian Tax to GDP ratio – for the centre & the states - is around 17% while for countries like US is 27% & for the 36 member, Organization for Economic Co-operation & Development (OECD) 34%. Increasing the ratio by 2% to 19% - or at 4.02 lakh crores - can more than fund the scheme, Chidambaram averred. Obviously, increasing the tax base will not be easy.

Alternative 3: If 3.6 lakh crores is entirely funded by the centre it could consume 16% of revenues or 13% of budget; if 70% is funded by the centre, the fig shall drop to a more reasonable 2.5 lakh crores (~9% of budget). Since the fig is substantial nevertheless, it would necessitate folding assorted “demerit subsidies” & driving those savings into NYAY or raising additional taxes; Economists like Arun Kumar have suggested reintroduction of Wealth tax, Estate duty, Gift tax, or Inheritance tax – or tax on the Super-Rich – to raise about 1.5 lakh crores; withdrawal of food subsidy to these 25 crore people could add another Rs 50,000 crores; withdrawal of "demerit subsidies" could contribute the rest.

(C )Will the scheme be rolled out in phases as it happened with the MNREGA?

There was widespread anticipation from analysts that the scheme would be rolled out over a 5 year period starting with a pilot, after the new govt. takes over, after May 2019. The MNREGA scheme of UPA I, during 2004-09, was rolled out in phases for maintaining fiscal prudence, helping fine tune delivery & also aid as an electoral issue on the eve of the next general election; Praveen, however, promised roll out, during a maximum period of 2 years, across the country.

He alluded to the 950 Central sector & centrally sponsored sub schemes & suggested that apart from the main 11 - like MNREGA, Fuel, Food, Fertilizer, Health, Education subsidy etc.- they rest could be reviewed indicating that the scheme is unlikely to be fiscally imprudent. Incidentally, Arvind Subramanian, had conceded in his Economic survey, 2017, that the 950 schemes, consuming 5% of GDP, suffer from limitations on targeting due to “misallocation”, “leakages”, “corruption of local actors” & the differing “institutional & implementation capacity” across states; ERGO: districts with the greatest poor suffer from the greatest shortfall of funds.

Conclusion

Direct benefit Transfers (DBT) - money in consumer hands without any strings attached - would boost consumption, spurring production & cranking up the investment cycle creating much needed jobs. It is however conceivable that with the income transfer of Rs 6000 per family, per month, there could be some people who might opt out of the workforce. It could also lead to angst in people falling in the middle 20-67% bracket of the population who too could demand similar benefits; this segment of the population are just above the BPL population but could regress into BPL if there is a health emergency in the family or during an economic downturn.

Ideally, the following measures could be implemented:

(a)Since the national food security bill promises subsidized food to 67% of population (~90 crores) & the spent is 1,84,000 crores or Rs 2,044/-  per head or Rs 10,222/- for a family of 5 (~18 crore families); it would be prudent to transfer Rs 10,000 to 18 crore families to stop leakages & pricing distortions in the cereal market. The middle bracket of the population is thus compensated with DBT of Rs 10,000/- per annum while only an additional budget of Rs 62000/- per family for the 5 crore BPL families would suffice. 

(b)The Fertilizer subsidy & the PM Kisan budgets are eerily similar at Rs 75000 crores; perhaps, Modi was planning to eliminate fertilizer subsidy in lieu of direct transfers under PM Kisan after getting re-elected. The NPK – Nitrogenous: Phosphate: Potash – fertilizer ratio is recommended at 4:2:1 but since prices of urea - a nitrogenous fertilizer - are heavily subsidized, the ratio got mangled to 6.8:2.7:1 & needs rectification. By transferring money directly to the farmers accounts, subsidy currently being passed to fertilizer manufacturers can be withdrawn & the diversion of fertilizers to chemical plants – reduced but not eliminated completely after neem coating – eliminated.

Post these direct transfers, governments should eliminate power subsidy to ensure that power distribution companies enter into the green & power producers & banks move out of the NPA (Non Performing Assets) mess; else the UDAY scheme would emerge futile.

Conclusion

Doles - by their very definition - are free & evoke angst; the MNREGA scheme launched by the UPA promised 100 days of employment i.e pay for works & hence not a free transfer although it suffered from lack of asset creation which is now being rectified. Likewise, contributory schemes like the accident death & disability insurance cover of 2 lakhs under, the Pradhan Mantri Suraksha Bima Yojana, at Rs 12 per annum, Life cover of 2 lakhs under the Pradhan Mantri Jeevan Jyoti Beema Yojana at Rs 330 per annum or the Atal pension Yojana, launched by the NDA, ensure no free lunches; such economic models are inherently better. Money spent on “Free Healthcare & Education”, though, helps in enhancing the human development index & productivity & hence recommended; govt. abandoning responsibility, in Health & Education, to the private sector, would only increase inequality.

Paradoxically, criticism on welfare schemes emanates from the rich & the middle class despite being the largest beneficiaries of subsidized education, LPG & fuel; the poor,obviously, do not have bikes to ride & find it difficult to pay for a refill cylinder. 

Ideally, therefore, the debate should focus on “merit subsidies” & the elimination of “demerit subsidies”.

Indian fiscal deficit (FD) for 2018-19 is 7.04 lakh crores - nearly equal to the "Conditional" & "Unconditional" exemptions granted by the Union govt.; in other words mere withdrawing of exemptions eliminates the FD; PM Modi, in the Economic Times Global Business summit, in Jan 2016, rightly, lamented that benefits given to the farmers or poor are termed by experts & govt. officials as “subsidy” to the poor while those given to industry or commerce “incentive” or “subvention” & queried why subsidies, going to the well-off, are portrayed in a positive manner.

NYAY, therefore, is a poll promise that has brought the Congress back into the game, seen as hopelessly lost, to the BJP, post Balakot. Removing the “demerit subsidies” flowing into many of the 950 schemes & diverting them into NYAY makes the scheme fiscally prudent. Replacing the fertilizer subsidy of Rs 75,000 crores with a direct transfer of Rs 6000/- to 12 crore farmers, under PM Kisan Yojana & eliminating the Public Distribution System(PDS) & transferring the Rs 1.84 lakh crores food subsidy to 18 crore families at Rs 10,000/- per family, would be a preferred alternative to eliminate not only rent seekers & leakages there-off but also distortions in the commodity markets. In short, the nation would be better served if political parties compete on development models rather than merely running down each other on frivolous issues.

The Strange Emotions Behind The Unveiling Indo-Pak Skirmish

A contrarian view: Are we Indians "Emotional Fools?

When the Pulwama attack happened, the right wing was baying for blood while the Left & Liberals - quite rightly - were asking the govt. to think through the "escalation matrix" before reacting & inconceivably got branded as "anti-nationals" in the bargain.

After Wing Commander, Abhinandan, became a Prisoner of War the right wing - rightly - opined that such collateral damage is inevitable during war or war like situations while the Left & the Liberals are running the hashtag #BringBackAbhinandan campaign and lambasting the right wing for lacking respect for peace & human life. A paradox indeed!! 

When IC 814 was Hijacked and taken to Kandahar, in 1999, it was public pressure that forced the government to capitulate and release terrorists - including Masood Azhar - who went on to become our nemesis later. 

Deterrence is effective if it is seen as credible by the enemy & that demands the willingness to bear costs; extreme emotions of jingoism on hearing news of F-16 downed by a vintage Mig 21 Bison & chestfallen when the Abhinandan was captured fray at such strategic calculus. Prudent, therefore, that the entire spectrum of Indian public opinion should shun emotions & learn to think rationally regarding the protection of Indian strategic interests.

Pakistan, clearly, views India as an "existential threat" since the conventional weapons superiority of India to Pakistan is 2:1 & hence uses nuclear sabre rattling & low cost "non- state actors" - euphemistically called terrorists - to break the country "through a thousand cuts" by supporting terror in Kashmir, Punjab, North East, the Naxal corridor or by taking advantage of any other fault lines in India. Therefore, the need to discipline Pakistan should not be in any doubt; our actions against them should be consistent and not necessarily linked to election cycles alone.  This is an absolute necessity especially when India has “Great Power” ambitions & aspires a place at the high table.

Pakistan cannot be taken lightly though; after all, it is the same country which hoodwinked the United States, in Afghanistan, for 18 long years between 2001 till date. India should shun jingoism and quietly build up its capacity - like in 1971- before executing a well thought through course of action aimed at a complete victory & achievement of its strategic objectives. History, offers us another bitter lesson; in 1962, it was not China that attacked India - as our history books less than accurately claim - but our humiliating defeat was a consequence of India running the "forward post" policy - without building its military capacity. Logically, we should not repeat the same mistake again.  

Vice Chief of Army, General Sarath Chand told a Parliamentary Standing committee, that 68% of army equipment is "vintage", 24% "current" & only 8% "state of art" implying an urgent need for modernization. The CAG report, presented to Parliament, in June 2018, noted that of the 152 types of ammunition, used by armed forces, 121(80%) were below WWR (War Wastage Reserve) requirement to fight a 40 day intense war, 55% below MARL(Minimum acceptable Risk Level) requirement to fight a 20 day war & 40% below 10 days- a "critical level"; in other words India is in no position to fight even a short war of 10-15 days & this hopeless situation has remained the same during both the UPA & the NDA years. Hence the need for  the twitter warriors & prime time TV war mongers to shun rhetoric & bravado & run a reasoned debate to force governments to act on building capacity.

Indian strategy, therefore, should be built on three bedrocks: in the short run, as Deng Xiaoping, of China, once said "hide your strength; bide your time"; in the medium term, as the former US President, Theodore Roosevelt wrote "Speak softly but carry a long stick"; & in the long run the immortal tenet of Sun Tzu should prevail: The supreme art of war is to win without fighting!!