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Notice (8): Undefined variable: urlPrefix [APP/Template/Layout/printlayout.ctp, line 8]latest-news-updates/making-sense-of-nyay-jean-dreze-4686922.html"/> LATEST NEWS UPDATES | Making sense of NYAY -Jean Dreze | Im4change.org
Resource centre on India's rural distress
 
 

Making sense of NYAY -Jean Dreze
-The Indian Express

It is best read as a political promise for social security. There is more than one way of redeeming it

Guaranteed minimum income is a powerful idea that has already made some headway in various countries. Some European countries, for instance, guarantee a minimum income to their citizens. This requires extensive data collection as well as an effective cadre of welfare officers and social workers tasked with enquiring into the circumstances of people who claim to need income support.

It would be nice if India could achieve something similar, but the obstacles are daunting. Starting with the financial burden, a recent brief of the World Inequality Lab by Nitin Bharti and Lucas Chancel presents some useful figures. The authors essentially estimate the “minimum-income gap”, that is, the gap between minimum income and actual income summed over all households with actual income below the minimum. With a minimum income of Rs 72,000 per year, the gap turns out to be 1.3 per cent of GDP. This information is helpful, but it does not tell us much about what it would cost to guarantee a minimum income of Rs 72,000 per year to everyone. All it says is that if this could be done through perfectly targeted and costless top-up transfers, it would cost 1.3 per cent of GDP.

In an earlier avatar, the Congress party’s minimum income guarantee (MIG) proposal was based on this sort of top-up model. The idea was that the government would simply fill the gap — if any — between minimum income and actual income, household-wise. This is impractical, if only because it requires household-specific income data that are virtually impossible to collect, at least for now. It also creates obvious incentive problems. One possible response is that the basis for calculation of the gap should not be actual income but some sort of “imputed income” — an estimate of what a household is expected to earn based on observable characteristics such as education and land ownership. Imputed-income estimates, however, are bound to lack precision, leading to large inclusion and exclusion errors.

For these or other reasons, the top-up formula was dropped and NYAY was announced: Uniform cash transfers of Rs 72,000 per year, equivalent to Rs 6,000 per month, to the poorest 20 per cent households — about 50 crore households based on 2011 census data. Initially, an impression was created that NYAY “guaranteed” Rs 12,000 per month, because most households earn at least Rs 6,000 on their own, but this is incorrect. In fact, Bharti and Chancel estimate that 33 per cent of households earned less than Rs 6,000 per month in 2011-12, and the corresponding proportion today may not be much lower. In short, NYAY is a targeted cash-transfer scheme that guarantees Rs 6,000 per month to the recipients — nothing more, nothing less. It can also be thought of as a massive non-contributory pension scheme.

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