Rahul Gandhi is talking up his proposed NYAY (Nyuntam Aay Yojana) scheme (promising Rs 72000 a year to 5 crore of India’s poorest) as the final assault on poverty. He is also talking it up as the scheme that will sweep the BJP out of power in 2019. But can a government truly alleviate poverty in India by setting aside Rs 360000 crore a year? If yes, can such a silver-bullet scheme be easily implemented? What about its impact on the unemployed? Will it end up making them lazier?
World-renowned economist Professor Jayati Ghosh shares her views in an interview:
Congress says they consulted many top economists, including Raghuram Rajan, before implementing the Rs 6000 a month minimum income guarantee scheme. But you have said that it is unworkable in its current form. Can you share your concerns?
It is almost impossible to determine household incomes, especially in a society in which around half the workforce is self-employed and the bulk of the rest are in informal employment. Incomes also change from year to year and month to month. So, people may fall below or move above the line.
Choosing beneficiaries raises huge problems of unwarranted inclusion and unjustified exclusion. There is bound to be resentment and anger against beneficiaries if others feel they have been unfairly excluded, and this can give rise to social tensions that can be expressed in unpleasant ways. The amount proposed is currently well above the minimum wage in most states or even the median market wage - what about those working at those wages who are not included among the bottom 20 per cent (since they cannot all be included)?
What about the concerns that all it could lead to is a shifting of the poverty-line mark - from around Rs 40 a day to Rs 400 a day? If Rs 12000 a month becomes the new base income, isn’t that a real threat?
Rs 12000 a month for a five-member household is not an unreasonable poverty line. So, that is not the problem. The current poverty line is far too low to express anything other than extreme destitution. The problem is rather there will be lots of people above the official poverty line who will not get this income transfer. Also, such money should not replace existing important social spending, which should rather be increased.
What about the fear expressed by some analysts that the scheme could also end up making unemployment a popular option since this is essentially money without work?
Some of us have been advocating a different (and to my mind more workable) combination: Expanded and better quality universal basic services (which also creates many more jobs) plus universal right to work in both rural and urban areas for every adult plus universal pensions for the elderly and those with disabilities. Right to work provides workers with dignity, does not appear as a charity, and enables the creation of assets or provision of services.
Any lessons the Congress and India ought to borrow from Iran's universal cash transfer scheme that has been running since 2011 and whose real value has been hit by rising inflation?
The answer is already in your question. It is obvious that such an outcome can occur and it has been raised by many in the past. That is why some of us are emphasising the expansion and strengthening of public services and provision of essential goods.
There are though the undoubted benefits that cash transfers in general offer. I was reading about how Kenya’s GiveDirectly transfers reduced levels of the stress hormone cortisol. Another research quoted by Professor Abhijit Banerjee talked of how cash transfers in Indonesia reduced suicide rates by 18%. So, is there any way in which we can pass on these benefits to our poor in a more advantageous way?
I do not wish to comment on studies that I have not examined myself, but obviously any target group that gets additional cash will be better off than another group that doesn't get cash, other things remaining equal.
Generalised cash transfers are different - they have macroeconomic effects. Some are positive, raising effective demand and therefore economic activity and employment. In supply-constrained situations, they can lead to inflation. But the bigger concern is that they will replace public spending and lead to privatisation of activities like health and education in which there are major asymmetries of information and so it is important to have public providers.