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NYAY: Will it take off?

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NYAY: Will it take off?
By: Varsha Balasubramanian
May 4, 2019
  All Articles by: Varsha Balasubramanian       View Profile
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Abstract:

Under the Nyay ("Nyuntam Aay Yojana") Scheme, Congress has promised a minimum income guarantee to the poor. The party has promised that it will give Rs. 72,000 per year to 20 per cent of India's poorest if the party emerged victorious in the ensuing Lok Sabha elections. The scheme was severely criticised by Bharathiya Janata Party (BJP) that it will lead to the imposition of taxes on the middle-class income group. This article aims at analysing the methods of funding this scheme and if the execution of the scheme is possible without taxing a targeted group of people.

Introduction:

The NYAY Scheme is an initiative to lower the poverty levels in India with an objective of attaining social justice. This scheme came under scrutiny when a Public Interest Litigation was filed in the High Court of Allahabad stating that such a poll promise amounted to bribery and that it violated the Representation of the People Act, 1951. However, this matter is to be decided by the courts and isn’t the concern of the current article. It is paramount to note that the NYAY Scheme targets 20 percent of India’s poorest therefore the fund requirement amounting to around 3,50,000-3,70,000 crores. Hence it is pertinent to analyse as to how Congress plans to fund it.

Analysis of NYAY Scheme in social terms:

The common notion is that free money will make people lazy. The same notion follows this scheme and is one of the principal arguments against the implementation of it. It is however to be understood that an average household has five members which means an individual gets ₹ 1200 of the ₹ 6000 per month. One cannot state that this income will lead to people opting out of work, as their situation may continue to be the same as it was earlier, and the entire benefit of the extra money will be nullified. To quote an example, the Alaska Permanent Fund pays out $2,000 annually, statistics however show that there is little or no effect on labour.[1]

The second concern of the Scheme is that people will spend the free income on alcohol and tobacco products. This concern has been addressed by the party and they have come up with a solution to credit the amount into the account of women members of the family, however the chances of domestic violence in order to obtain money from the women members for temptation goods still does exist. To quote a case study, in the Bhil tribal village there was a drop, in consumption of alcohol since people had liquid assets to use for agricultural inputs and therefore one saw an increase in agricultural productivity and own cultivation effect.[2] Similarly several case studies in Latin America and Africa suggest that people spend any excess income that is not obtained out of production or labour, to procure items of necessity instead of temptation goods.

Analysis of NYAY Scheme in financial terms:

In financial terms the NYAY Scheme will attract a minimum of 3,50,000 crores expenditure, which is roughly 12.5-13 percentage of total expenditure budget (2784199.55 crores).

It would be unidealistic to tax individuals, companies and partnerships any further, so would removal of exemption for agricultural sector and other exempted transactions. One option might be to tax receipts from business conducted by charitable institutions which comply with Sections 11, 12 and 13 of the Income Tax Act, 1961. However, this would be unadvisable as the Congress has assured that there won’t be any unnecessary tax levy.

Considering the scenario, when one looks at the budget and the trend in the budget numbers over the last couple of years, in greater detail, one can see the following critical points:

The Revenue receipts as per budget 2019-20 reflects the scenario of tax revenues increasing by ₹ 4.62 lakh crores from 2017-18 (Act.)  to 2019-20 (Est.). This is made up of 3.6 lakh crore additionally coming from taxes on corporate and other income and a further 3 lakh crore from GST with the state share in the same increasing by 1.7 lakh crore in the same period. Thus, tax buoyancy is likely to provide a fillip to the collections.

When one looks at the budget expenditure also, it is clearly seen that the increase for establishment costs are controlled at ~7% per annum while the allocation for central sector schemes / projects have increased by ~20% per annum (nearly 3 lakh crores) in this period. Thus, essentially, there has been an additional ₹ 3 lakh crore found for schemes and projects in the last two years – it is quite a good possibility that some of these schemes and projects are dovetailed with the NYAY scheme. The total allocation estimated for 2019-20 on this count is to the tune of about 8.60 lakh crore. This actually could present a significantly positive opportunity to rationalise the whole subsidy system. Some of the key components of this budget allocation include:

            Direct Benefit Transfer – ₹ 29,500 crores

            MGNRES – ₹ 60,000 crores

            Farmers income support scheme – ₹ 75,000 crore

These itself make up about 50% of the required funds – thus, the need for raising further funds may be reduced to 50% of the requirement, which could come from tax buoyancy.

With the increased economic activity, some part of this scheme could be funded by the states as the states’ revenue would also see significant increases.

The money released into the system itself is likely to enhance the economic activities thus resulting in increased tax buoyancy in terms of both direct and indirect taxes.

Further, some portion of the requirement could be met from rationalisation of other expenditure from the Budget. A 5% savings on all expenditure other than interest and central sector schemes would release nearly ₹ 60,000 crores per annum.

Conclusion:

It is to be considered that the money given through this scheme will go into buying of food, clothing etc., which will enhance the economic activity in the country thereby resulting in increase of GST and other taxes.

Further, even the most advanced capitalistic countries like the USA, UK haven’t been able to stop giving support payments to the poor despite being highly developed countries. Thus, having poverty alleviation cash benefits are not wholly inappropriate in a country like India.

However, the scale of the need in a case like India and the potential sources for raising such monies may be a challenge which needs to be carefully and meticulously planned for.

To summarise, the success of this scheme entirely depends on the rigor of its implementation which ensures that there is an appropriate sourcing of the amounts required for the scheme, the proper mechanism to ensure benefit reaching the right targets with least leakages etc.  

 

[2] https://www.livemint.com/elections/lok-sabha-elections/congress-nyay-scheme-pros-and-cons-nyuntam-aay-yojana-1553781007950.html

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Authored by Prof. CA. S. Balachandran, professor at School of Law, Sastra Deemed to be University and Varsha Balasubramanian, final year student pursuing B.Com; LL.B (Hons.) at  School of Law, Sastra Deemed to be University

 

By: Varsha Balasubramanian - May 4, 2019

 

Discussions to this article

 

it is a ill-conceived scheme; a result of the collective ego of the stalwarts of the Congress party and as a last ditch effort to say something in the wake of elections. Your analysis is also flawed as it limits itself only to see if the scheme could be financed and ignores the facts that there could be other viable alternatives. please note that every year it would generate demand for consumer goods only to the extent of funds distributed and nothing more. Infusion of funds in the economy without corresponding availability of goods would lead to inflation, a situation even the hardcore supporters of the scheme would agree. A better course would have been to use the same money in creating productive assets which would generate income although of a lower magnitude. Cumulative investments of this magnitude would produce income which will be a multiple of the investments so made. To understand it further please go through multiplier theory of Keyenes. Merely curtailing the scope of the existing welfare scheme would mean denial of benefits to one set of poor for the benefit of others, Tat may not be a good idea.

By: Ramesh Sharma
Dated: 06/05/2019

 

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