NYAY: Is It Deliverable?

It’s engaging and difficult job to maintain adequate level of liquidity in the economic system so as it encourages growth in economic activities but not having any adverse impact on inflation and interest rate. For this central banks in consultation with the governments, sometimes infuses liquidity and sometimes sucks it out as money supply in the system should neither be very high to induce inflation nor very low  to restrict growth in economic activities. However political endeavors always may not be so rationale to keep these facts in mind when making promised for political gains.

NYAY has been proposed by Congress leadership which promises Rs 72000 every year to 20% poorest families in country. This has started a discussion among economists. Some are finding this to be the best way to pull out the poor from poverty. However there is a spectrum of large number of economists who find this scheme fiscally imprudent as they fear that it will lead to high fiscal deficit which will have negative impact on exchange rate, inflation and interest rate which would reverse the business cycle leading to high level of unemployment hence lower lever of disposable income. One thing must be very clear that arranging money is not a problem. Problem will rise as how it is being arranged and implemented.

Moreover a few in the party say that this scheme would not cost single penny to the exchequer. This still raise a lot of concerns as where this money of three lakhs sixty thousands crores will come from. Does it purpose to bring down expenditure on other social security schemes? On the other hand there are many in the party who claims that no existing social security scheme would be affected by the NYAY.

NYAY though may look lucrative in its promises, but implemented it will lead a number of obstacles and difficulties. Rs 72000 every year to poorest 5 crores families would be Rs 3.6 trillion every year. This amount would be around 3% of GDP and is 13% the total central government expenditure for 2019-2020. This figure itself tells how it will impact fiscal deficit which is at 3.4 and the government is struggling to bring it below 3%. So on this account, this scheme would fiscally prudent for the exchequer.

Also there is concern about the sustainability of the scheme. The expenditure on this scheme is not expected to be linked to assets creation and without creating assets to support economy; this scheme will fall as the time will pass. We have already witnessed that the expenditure on the MNREGA has not yielded much besides money transfer and corruption in implementation. And finally government was forced to attach this scheme to other development schemes to create social assets.

Irrespective of the claims made by a number of economists, this scheme will surely push the inflation upward because of higher liquidity; particularly the food inflation. It may cause upward movement in interest rates. The ramifications of these might be far grave than expected.

There would be a number of difficulties in implementing this fairly and transparently. Today there is not single comprehensive database about the incomes of Indian nationals from which the incomes of nationals can be identified while selecting beneficiaries for cash transfers. Till December 2018, as per Income Tax Department only 6.05 crore individuals have filed ITR and none of these are expected to be beneficiary this scheme. So rests of the population would have to be considered to be eligible as there is no way left to track and link income. Here the problem will start. However Ayushman Bharat may be helpful. 

There is high risk that many eligible and needy families would be left out from benefits as everyone will try to grab this opportunity to augment his income by Rs. 72000 by cancelling their real income. Now imagine how miserable will be life of left out poor!! And the difficulty is that the Supreme Court has specifically made it clear that linking Aadhar to bank account unconstitutional, so are any effort to do.