NYAY: The scheme brings focus back to poverty and income inequality in India

India is home to the highest number of poor people (364 million) – more than the population of the US (328 million) and the greatest income inequality in the world. It is definitely time to discuss welfare interventions like NYAY.

VOICES

 |  6-minute read |   28-03-2019

PRASANNA MOHANTY

 @prasannamohanty

The Congress’s poll promise, of giving Rs 72,000 a year to 20% of the poor in the country, has brought the long-neglected issues of poverty and inequality into sharp focus.

While there are widespread concerns about the availability of fiscal space and the implementation challenges associated with such a humongous scheme, there is little doubt that now there is no wishing away a public debate on these critical issues for the next few weeks — or beyond.

Time for some NYAY? Rahul Gandhi has swung around the political narrative by announcing the NYAY programme. (Source: PTI)

The complete details of the scheme, called the Nyuntam Aay Yojana (NYAY), are not known yet (the Congress has said its manifesto would do the needful) but a few things are clear. If the party comes to power, it would transfer Rs 6,000 a month (Rs 72,000 a year) directly to the beneficiaries’ bank accounts and that the beneficiaries would be about 50 million families or 500 million people (taking five as the average size of a family).

This would cost about Rs 3.6 lakh crore a year.

On Wednesday, former Finance Minister P Chidambaram added that the scheme would be implemented in phases and would cost about 1.8% of GDP at any given time. Given that the GDP for 2018-19 at constant (2011-12) prices is Rs 141 lakh crore, as per the second advance estimates, 1.8% of GDP would mean Rs 2.5 lakh crore. This is no small amount — and bound to raise concerns.

How to fund NYAY?

This would remain in the realm of speculation until the Congress spells out how it will go about it. One Congress spokesman has already said that the party does not intend to withdraw any existing social programmes — which would mean new sources of funding need to be found. What those sources will be shall become clear only when the party’s manifesto is out.

Until then, here is what an international study which goes into this very issue — Tackling inequality in India: Is the 2019 election campaign up to the challenge? released by the World Inequality Lab on March 25, 2019 — proposes. It says the best way is to impose progressive taxes on income and wealth, given the rising inequality at the top of the income distribution graph in India.

Are they invited? We still don't know who exactly the beneficiaries of NYAY will be. (Source: Reuters)

First, it suggests that a 2% tax on total wealth on households owning more than Rs 2.5 crore of wealth (top 0.1% of households) would yield Rs 2.3 lakh crore or 1.1% of GDP — 99.9% of households would not be affected by it. Alternately, a 2% tax on only land and building above Rs 2 crore would yield Rs 2.6 lakh crore (1.2% of GDP), impacting the top 1% of the households. Or new income tax brackets on top income groups (top 0.1% of population) by 20% points could generate Rs 1.36 lakh crore (0.6% of GDP).

This report also calculates that guaranteeing an income of Rs 72,000 to 33 per cent households — which, it calculates, would be earning less than this amount a year in 2020 — would cost Rs 2.9 lakh crore or 1.3% of GDP in 2020. (The report looks at three scenarios: minimum income thresholds of Rs 100,000, Rs 72,000 and Rs 50,000 and its calculations are based on the India Human Development Survey [IHDS] of 2011).

How to identify the beneficiaries

The next big question is how to identify the beneficiaries — the Congress has not spelt this out either.

However, the Socio-Economic and Caste Census (SECC) of 2011 has mapped household incomes, among other things, and is a good guide. The Ayushman Bharat programme uses the same data set to identify its beneficiaries and remains the only exhaustive survey (census) of its kind which groups households by the monthly income of the highest earning member.

India tops the world in income inequality

The World Inequality Report of 2018 shows that India has risen to the very top on the inequality graph during 1980-2016, among US, Canada, Russia, China and Europe.

The 2019 inequality report on India mentioned earlier says this rise in income inequality has no precedent in recent history.

It says that since 1980, the top 0.1% of earners captured a higher share of total growth than the entire bottom half of the Indian population — while the top 1% received a higher share of total growth than the middle 40% of the population.

No matter how hard you work — India is the most income-unequal nation in the world. (Source: Reuters)

Further, the Scheduled Castes (SC), Scheduled Tribes (ST) and Muslims are the worst hit — they are “overrepresented in lower wealth deciles (for instance, in the bottom 50 per cent)”.

This income disparity in India was not a mechanical consequence of development but the result of policy choices made after opening up the economy. Other emerging countries which went through deregulation processes were able to combine high growth rates and a much lower increase of income inequality, it points out.

India has the highest number of poor

It is true that India has made giant strides in reducing poverty. The Global Multidimensional Poverty Index, 2018 of the UNDP and Oxford Poverty and Human Development Initiative (OPHI) said 271 million people moved out of poverty in India between 2005-06 and 2015-16.

But this report also said that India was home to most of the poor in the world and that 364 million people were still poor in 2015-16.

This number (364 million) is more than the population of the US — 328 million as on March 27, 2019, as per the US Census. 

This report measures poverty through a multidimensional poverty index (MPI) developed by the UNDP and OPHI, taking into consideration multiple deprivations in health, education and living conditions and includes 10 indicators.

It further said Bihar remained the poorest state in 2015-16 with more than half of its population living in poverty. The four poorest states were — Bihar, Jharkhand, Uttar Pradesh and Madhya Pradesh — home to 196 million MPI poor people or over half of all the MPI poor people in India.

It made more shocking revelations: “Traditionally disadvantaged subgroups such as rural dwellers, lower castes and tribes, Muslims and young children are still the poorest in 2015-16. For example, half of the people belonging to any of the Scheduled Tribes communities are MPI poor... every third Muslim is multidimensionally poor, compared to every sixth Christian.”

We may continue to debate the fiscal possibilities or impossibilities of implementing NYAY or any other scheme of its kind till the cows come home — but it would be worth keeping in mind that India is home to more poor people and more inequality than anywhere else in the world.

Also read: Don't listen to detractors. Rahul Gandhi's NYAY is plausible. Here's how

Part II. General Elections 2019: Who is funding the electioneering of our political parties?

Recent amendments in various statutes bringing in electoral bonds and allowing funding from foreign sources jeopardise transparency and expose our political parties to undesirable influences and unaccounted money.

POLITICS

 |  6-minute read |   15-03-2019

PRASANNA MOHANTY

 @prasannamohanty

The second part of the two-part series looks at the implications of the amendments in FCRA, allowing political funding from foreign sources.

While electoral bonds have added anonymity to political funding and raised the concerns of the Election Commission of India, organisations and individuals fighting to clean electoral funding, amendments to the Foreign Contribution (Regulation) Act (FCRA) have added a new fear — foreign companies influencing our political parties and through them, the governance of the country.

Amendments in FCRA facilitates funding from foreign sources

The FCRA was first legislated in 1976, to protect political parties from foreign influences, among other things, which was later substituted with the FCRA 2010. Section 4 of the FCRA 1976 and section 3 of the FCRA 2010 say: “No foreign contribution shall be accepted by any political party or office bearer thereof."

Contravention of any provision of the FCRA attracts up to five years of imprisonment and/or with fine. Section 29-B of the Representation of the People Act of 1951 also prohibits political parties from receiving funds from foreign sources and government companies.

A ‘foreign source’ has been defined under both the FCRA 2010 and 1976 to include any company with a foreign shareholding of more than 50%.

Violations of both funding from foreign sources and government companies reportedly by the BJP and Congress were noticed and challenged in the Delhi High Court. In 2014, the Delhi High Court held that both the political parties were guilty of violating the FCRA and RP Act and asked the Central government to take punitive action within six months.

Foreign companies can continue to donate to political parties while the govt has tightened foreign funding to NGOs. (Representational image: Reuters)

Instead, the Central government first amended the FCRA of 2010 to legitimise the violations through the Finance Bill of 2016 — and then extended it to the FCRA of 1976, through the Finance Bill of 2018 to give it retrospective effect from 1976 by redefining the definition of foreign source/company.

The 2016 amendment inserted a proviso — “Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act (FEMA), 1999, or the rules or regulations made thereunder, then, notwithstanding the nominal value of share capital of a company is more than one-half of such value at the time of making the contribution, such company shall not be a foreign source”.

This change means that if the foreign shareholding in an Indian company is within the limits of foreign investment prescribed for the sector under the FEMA or the rules and regulations framed under it, the company will not be treated as a foreign source — even if it holds more than 50% shareholding.

This means foreign companies can continue to donate to political parties, even while the Central government has tightened foreign funding to NGOs like Greenpeace India and cancelled the FCRA licenses of thousands of NGOs in the past few years.

Weeks before his retirement in November 2018, the then-Chief Election Commissioner OP Rawat said, "The EC has been of the view that no foreign funding for elections should be allowed”. But what action the ECI has taken to reverse the changes is not known.

At least two petitions are now pending before the Supreme Court and Delhi High Court to force the Central government to act against the BJP and Congress for reportedly violating the FCRA Act and reverse the amendments made. These political parties were accused of violating the FCRA and RP Act by apparently accepting funding from foreign sources and government companies like STC and MMTC.

Funding from foreign sources for the BJP and Congress

The Association for Democratic Reforms (ADR) has recorded 34 instances of funding from foreign sources — 19 for the BJP and 15 for the Congress between 2003-4 and 2011-12, which were condoned through the amendments in the FCRA 2010 and 1976. Funding from the Indian subsidiaries of Vedanta, Dow Chemicals, Hyatt, etc., ranged from Rs 1 lakh to Rs 14.5 crore as shown in the table below. The BJP received Rs 19.4 crore and the Congress Rs 9.83 crore in these years.

Why is it important to regulate or check political funding?

Political parties are very important because they are the gatekeepers of democracy; they fight elections, form governments and pass legislation. Therefore, their funding has a great bearing on the functioning of our democracy and instruments of government.

The Law Commission of India, in its 2015 report on electoral reforms, lists three key reasons to seek transparency and reforms in political funding.

One, money power disturbs the level playing field for political parties and vitiates the purity of elections. Richer candidates and political parties have a greater chance of winning elections.

Two, there is widespread prevalence of black money, bribery and quid pro quo corruption which helps candidates fund their campaigns. It quotes the Supreme Court affirming the conclusions of the National Commission to Review the Working of the Constitution (2002): “The sources of some of the election funds are believed to be unaccounted criminal money in return for protection, unaccounted funds from business groups who expect a high return on this investment, kickbacks or commissions on contracts etc."

Third, unregulated or under-regulated election financing leads to two types of capture: (a) industry/private entities use the money to ensure less stringent regulation and (b) money used to finance elections eventually leads to ‘favourable policies’ — that is state and regulatory captures.

The way forward

It would be instructive to keep in mind that reversing the amendments being discussed would not be easy. Old timers would recall how the previous NDA government had, in 2002, tried to overturn the Supreme Court’s ruling ordering all candidates to file their criminal antecedents, along with educational and asset details, in their election affidavits. The then-NDA government had issued an ordinance first and then introduced a Bill in the Lok Sabha to block the apex court ruling. When it was brought to the notice of the apex court, the latter promptly struck down the amendment as unconstitutional.

Needless to say, the Supreme Court and Delhi High Court need to step in and reverse the amendments in different statues to bring transparency and accountability to electoral funding — as also to stop funding from foreign sources in the interests of a healthy democracy.

Also read: General Elections 2019: Even after Balakot, are major BJP states not joining General Elections, wary of an uncertain mood?

Part I. General Elections 2019: Who is funding the electioneering of our political parties?

Recent amendments in various statutes bringing in electoral bonds and allowing funding from foreign sources jeopardise transparency and expose our political parties to undesirable influences and unaccounted money.

POLITICS

 |  6-minute read |   15-03-2019

PRASANNA MOHANTY

 @prasannamohanty

The first part of this two-part series looks at the danger that the funding by anonymous companies in the form of electoral bonds poses to our democracy.

On March 12, the Supreme Court was indignant that the Central government had not set up a permanent mechanism to keep a tab on the disproportionate income of politicians, for which it had issued an order last year. In February 2018, the court was shocked to learn that the assets of some legislators, their kin and associates had gone up by more than 500% between two elections — and it wanted serious action.

What, however, goes unaddressed as yet is equally reprehensible — political funding has been made more opaque and unaccountable in recent years, paving the way for easy money (read: unaccounted money) to come in and influence policies and regulations. Multiple petitions challenging legislative changes made to facilitate such funding are pending before the Supreme Court and Delhi High Court.

Two key areas of concern are the electoral bearer bonds which apparently facilitate ‘anonymous’ corporate donations for political parties and the changes in the Foreign Contribution (Regulation) Act (FCRA), legalising funding by foreign sources.

Electoral bonds are opaque, hide funding source

To justify the introduction of electoral bonds, Finance Minister Arun Jaitley had written in January 2018 that “...a scheme of electoral bonds was announced to enable ‘clean money’ and substantial ‘transparency’ being brought into the system of political funding”.

What has actually been done is exactly the opposite.

The electoral bond was brought in through the Finance Act of 2017, which introduced multiple amendments in the Representation of the People Act (RP Act) of 1951 and Companies Act of 2013, jeopardising transparency in political funding. The Election Commission of India (ECI) strongly objected to these changes and wrote to the Law Ministry, seeking reversal of the amendments.

Key amendments — and the ECI’s objection to each — are the following.

One, section 29C of the RP Act was amended, taking the donations received through electoral bonds out of the ECI’s scrutiny. This was done by inserting a new proviso: “Provided that nothing contained in this sub-section shall apply to the contributions received by way of an electoral bond”.

The ECI described this as (a) “a retrograde step as far as transparency of donations is concerned and this proviso needs to be withdrawn” and (b) commented that now “it cannot be ascertained whether the political party has taken any donation in violation of provisions under section 29B of the Representation of the People Act, 1951, which prohibits the political parties from taking donations from Government Companies and Foreign sources”.

Two, the amendment in section 13A of the Income Tax Act disallowed cash/anonymous donation exceeding Rs 2,000 to a political party — but the cash limit under section 29C of the RP Act governing elections continues to remain Rs 20,000, thus making no material difference to accountability and transparency of political funding.

Three, the Companies Act of 2013 has been amended: (a) to omit first proviso of section 182(1), which reads “...the aggregate of the amount which may be so contributed by the company in any financial year shall not exceed seven and a half per cent of its average net profits during the three immediately preceding financial years”; thus removing the limitation of 7.5% and the section now reads “any amount” can be contributed (b) to replace “any amount or amounts” in section 182(3) with “total amount”, to remove “and the name of the party to which such amount has been contributed” in the profit and loss statements.

The ECI objected to these as well — saying that such amendments (i) “opens the possibility of shell companies being set up for the sole purpose of making donations to political parties, with no other business of consequence having disbursable profits” and (ii) “would compromise transparency”.

Though the ECI’s concerns are shared by the Law Ministry and Finance Ministry, the Central government has sought to brazen it out, telling the Rajya Sabha that no such concerns have been expressed by the ECI.

A few years ago, the ECI would have called repeated press conferences, written multiple letters to the GOI and put its objections in the public domain but things have changed. Its objections to the Law Ministry had to be accessed through the RTI applications.

True, the Central government also inserted section 182(3A) in the Companies Act of 2013 (through the Finance Act of 2017) to say that contributions by way of electoral bonds be made by “account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account”.

It also clarified while issuing notification for electoral bonds in January 2018 that (i) the purchaser must fulfil the extant KYC norms and make payment from a bank account (ii) a random serial number invisible to the naked eye is given to such bonds and (iii) the bond issuing bank (SBI) will not share the serial number of bonds with anybody, including the government and users.

Can any political party actually show us the money? (Photo: India Today)

But none of these actually addresses the concerns of anonymity of the donor, transparency in political funding or brings it under the ECI’s scrutiny.

The KYC norm will actually let the bank (SBI) know the donor and by extension, the government controlling it, but not the ECI or citizens. To say that the SBI will not share the information with the government is a vacuous argument. It is thus an advantage to the ruling dispensation all the way.

In fact, when the electoral bond was introduced, the Association for Democratic Reforms (ADR), which works for electoral reforms and has filed a petition challenging it in the apex court, had warned that this move would benefit the ruling party at the cost of the opposition. Its words have proved prophetic.

The ADR found (from the audited accounts of the parties) that of Rs 222 crore donated through the electoral bonds in 2017-18, the ruling party, the BJP, received Rs 210 crore (94.5%), the Congress Rs 5 crore and the rest Rs 7 crore.

Unknown source of income remains very high

The electoral bonds have only up added to the income of political parties from ‘unknown sources’ — which has remained very high all the past decade and a half. The ADR’s analysis (from the declarations in the audited reports of the national political parties) shows that during 2004-5 to 2017-18, income from unknown sources of the ‘national political parties’ account for 66% of the total, as shown in the table:

The Supreme Court’s next hearing on a bunch of petitions challenging these amendments in various statutes for issuing electoral bonds has been fixed for March 26. Hopefully, the court would show indignation at the Centre for going ahead with such amendments through the Money Bill route (by way of Finance Bills) to bypass the Rajya Sabha, to the detriment of transparency and accountability in political funding.

Also read: Why electoral bonds won't clean up political funding

General Elections 2019: Even after Balakot, are major BJP states not joining General Elections, wary of an uncertain mood?

The fact that BJP governments of Maharashtra and Haryana have not opted for simultaneous elections indicates a lack of confidence in the Modi magic. That's despite the muscular policy adopted towards Pakistan.

POLITICS

 |  5-minute read |   09-03-2019

PRASANNA MOHANTY

 @prasannamohanty

With the state cabinets of Maharashtra and Haryana not going for dissolution of their respective Assemblies in Friday’s (March 8) meeting — possibly the last one before the schedule of the General Elections of 2019 is announced — months of speculation about simultaneous elections in these BJP-ruled states have been put to rest.

This is as good a political sign as any that could be relied on to assume that the BJP is no longer sure of retaining power at the Centre, notwithstanding the bravado or muscular claims over the Balakot strike.

The govt says it hit Pakistan where it hurt the most. But will that ensure a clean sweep at the polls back home? (Source: Reuters)

BJP leaders at various levels have been talking about holding simultaneous elections in three BJP-ruled states — Jharkhand being the third one. While the tenure of the legislative assemblies of Maharashtra and Haryana ends in November this year, that of Jharkhand ends in January next year. The logic for advancing elections in these states was to ride the popularity of Prime Minister Narendra Modi and the performance of his government in order to beat anti-incumbency, if any. To be fair to the Jharkhand government, it had scotched the speculation much earlier.

But it is not difficult to see why these BJP-ruled states have baulked at hitching their bandwagons to that of Modi, more so in the post-Balakot scenario.

The political dividend that the party hoped for seems to have slipped away. Not only the Opposition parties, a few widows of the martyred CRPF jawans have now asked for proof of the Balakot casualties; international media has questioned the claims of destroying Jaish-e-Mohammed (JeM) terror camps or shooting down Pakistan’s F-16 fighter plane. These have dented the credibility of the claims made by ministers and leaders that 250 to 400 terrorists were killed in the strike or that India had taught a hard lesson to Pakistan. If anything, it was India’s MIG-21 which was shot down and it was the Indian pilot Wing Commander Abhinandan Varthaman who was captured and later released by Pakistan.

Blooming or not? The political dividends that the BJP hoped for may just have slipped away. (Source: Reuters)

To make matters worse, all the questions about the Rafale deal are back — in a shocking development earlier this week, the government’s top-most legal officer KK Venugopal told the Supreme Court that the documents related to the deal had been ‘stolen’ from the defence ministry; that the ones being relied on by those questioning the deal were marked secret and classified, and thus in violation of the Official Secrets Act.

There are talks of two newspapers being prosecuted for such violations. All this sends a wrong signal to the electorate that something indeed is wrong with the deal.

That the Balakot strike has not made the old issues disappear, as the Modi government might have hoped for by generating euphoria over its muscular response to the Pulwama terror strike, is evident from the latest (the first one since the post-Balakot strike) India Today TV survey. It shows ‘unemployment’ remains the top-most issue for the electorate (at 36%), which has indeed been the case with three consecutive ‘Mood of the Nation’ surveys by the CSDS, the last one being May 2018 in which 57% said that finding jobs in their area had become more difficult during the last three-four years. 

More bad news has come since. First, the National Sample Survey Office (NSSO) survey of 2017-18 on the state of employment, which the government decided not to release, said unemployment levels had touched a four-decade high at 6.1% and then, the shocker from the Centre for Monitoring Indian Economy (CMIE), that the labour force is down 25.7 million since September 2016 and the number of employed declined by 18.3 million in the same period, confirming that India has indeed moved now into job-loss growth, from the job-less growth of the UPA.

Clearly, the issue of jobs is very much there — that should worry the BJP. (Source: PTI)

The India Today TV survey, mentioned earlier, threw up ‘terrorism’ as the second (23%) issue, closely followed by ‘farm distress’ as the third (22%).

‘Terrorism’ as a concern is a new phenomenon and a natural consequence of the Pulwama terror strike and its aftermath, the gain from which to the BJP may not be as big as it was following a decisive Kargil victory in the 1999 General Elections.

That may have titled the balance against the dissolution of the legislative assemblies in Maharashtra and Haryana.

Farm distress continues to remain a big concern, even after the Modi government decided to provide cash support of Rs 6,000 to all small and marginal farmers (about 120 million families). Traders’ disaffection with the GST and the disillusionment of Muslims, Dalits and Adivasis with Hindutva forces are some other sources of worry for the Modi government. The CSDS survey mentioned earlier said the level of dissatisfaction over the performance of the Modi government had gone up from 27% in May 2017 to 40% in January 2018 to 47% in May 2018, indicating a 20-point increase in just one year — much higher than that against the Manmohan Singh government in July 2013 (39%).

Coming back to the BJP-ruled states of Maharashtra and Haryana, it is safe to assume that they want to play it safe for now — and rightly so. The disastrous consequence of the Atal Bihari Vajpayee government in advancing the 2004 General Elections by six months must be weighing heavy on their minds. The party had then expected to ride the popularity of Vajpayee and the euphoria of wins in three of the four Hindi heartland states that had gone to the polls in December 2003 — Rajasthan, Madhya Pradesh and Chhattisgarh.

By not hitching their bandwagons with the Modi government now, these state governments can hope to escape the fate of the Modi government — in case the latter should lose.

And if the Modi government retains power, the party’s governments in these states can surely hope for benefitting and retaining power too.

It is a win-win situation for them.