Rahul Gandhi as a PM May deliver NYAY ?

Rahul Gandhi as a PM  May deliver NYAY ?

Rahul Gandhi as a PM May deliver NYAY ? A large majority of the answers to this query have indicated in the negative that Rahul Gandhi’s announcement of Rs. 72,000/ year to poor families will affect inflation due to increased money flow etc etc..bringing the condition back to same state.

I am not aware of which condition or state is being talked about? I have no idea as I am neither an economist nor a public policy expert. Though I am not 100% in favor of NYAY scheme, for the sake of a healthy discussion, by providing counter argument to earlier answers, I would like to address this A2A.

Disclaimer: Not an ardent supporter of any political party but believes in a system of governance led by a majority govt countered by a strong opposition, as an essential requirement of a true democracy.

How Rahul Gandhi as a PM May deliver NYAY ?


First on Inflation:

  • News of 13th May 2019 – Retail Inflation hits 6 month high. The rate of price rise in April was the highest since October when the rate was 3.38%. This is what some of the economic analysts had to say:
  • Rupa Rege Nitsure, Chief Economist, L&T Financial Holdings:
    A significant deceleration in inflation for clothing and footwear and miscellaneous components has reduced core inflation from 5.06% in March to 4.57% in April. This reflects severe demand slowdown.
  • B Prasanna, Group Head, ICICI Bank: Based on this reading and the slowdown visible in industrial production, we maintain our call of another rate cut in August policy, with the action being dependent on realized outcomes of monsoons and trajectory of oil prices.
  • Joseph Thomas, Head Research, Emkay Wealth Management:
    The CPI number is on expected lines, and we expect higher fuel prices, a weaker Rupee, and the impact of summer on prices of fruits and vegetables, to push the CPI higher in the next 1 or 2 months.
  • Crisil: We expect headline inflation, measured by the Consumer Price Index (CPI), to rise 60 basis points (bps) to 4% this fiscal from 3.4% in fiscal 2019. This base case assumes food inflation rising to 3% from an abnormal low of 0.1%.
  • News of 14th May – April WPI Inflation at 3.07% vs 3.18% (MoM)
    • Primary articles inflation at 6.50% vs 5.07%
    • Food inflation at 4.95% vs 3.89%
    • Fuel & Power inflation at 3.84% vs 5.41%
    • Manufactured products inflation at 1.72% vs 2.16%
    • Non-food articles inflation at 5.23% vs 2.83%
    • Vegetables Inflation At 40.65% vs 28.13%

On Money Supply:

The point was to illustrate that even without Rahul Gandhi implementing the NYAY scheme, Inflation can go up & down and so does Money Supply.

Second Point on Growth:

Inflation should never be looked in isolation. Similar to Risk vs. Return conundrum, inflation vs growth is the conundrum. While RBI’s mandate is to rein in inflation, Govt’s mandate is to ensure economic growth. There should be a balance of both – an above moderate (not high) inflation is acceptable for a 7.5+% growth in the Indian economy.

Now, where does India’s growth come from? The 4 growth engines of an economy are:

  • Private investment – Companies investing in businesses, expanding businesses to cater to demand
  • Private consumption – Spending by citizens via consumption of mfg products
  • Exports – Consumption of Indian goods in overseas markets / countries
  • Government expenditure – Govt spending on infra, defense, welfare etc.

In my pinned tweet on twitter , you can find the state of the economy, with data provided by authentic source – Monthly Economic Report, Ministry of Finance, Govt of India.

Economy is not in an encouraging state at the moment:

  • Electricity generation growth and finished steel production have witnessed downtrends.
  • Credit growth: RBI reported over Rs 1 lakh crore fall in bank credit in the earlier fortnight of April 2019.
  • India Inc is not in an excellent state. Sales growth has been limited; Fixed asset growth has fallen, IPOs have fallen quite a bit in comparison to earlier years. PAT is better as compared to last year due to improvement in NPL’s.

The end result: GDP growth slowdown (estimated) to sub 7% levels.

What is the use of having lowest inflation, if we are not letting Indian economy grow to its full potential and improve incomes, consumption and in general, the standard of living of the 1.37 bn population?


Last Part: Minimum Income Support Programme (MISP) or Nyuntam Aay Yojana (NYAY) and its implications

Since the announcement, there have been many questions on the implementation of the MISP or NYAY scheme. Even I have quite a few questions. But, let us understand some basic points.

As another author pointed out NYAY scheme implementation means govt has to give Rs. 72,000 X 25 cr families. This is not true. What the scheme says is that the scheme will supplement the income of the poor.

For the 20% poorest families in India, NYAY scheme will aid & ensure that Rs. 72,000/year as a definitive income is made available. It means that,

  1. If a poor family, has ‘zero’ income, then NYAY will provide Rs. 72,000/year for that family.
  2. If a poor family, has Rs. 25,000 as their yearly income, then MISP/NYAY will provide Rs. 47,000 (Rs. 72,000 -Rs. 25,000) so that their income is Rs. 72,000 per year.
  3. If a poor family has Rs. 70,000 as their yearly income, then MISP/NYAY will provide Rs. 2,000 so that their income is Rs. 72,000 per year.

This is the detail of MISP/NYAY scheme, to ensure a minimum of Rs. 72,000/year to 5cr. poor families as given in the Congress Manifesto[7] .

Hence, all 5 cr. poor families, might not need Rs. 72,000 each per year. But, assuming that all of the 5cr. families need Rs. 72,000 per year, then the total amount needed is Rs. 72,000 X 5 cr. = Rs. 3,60,000 cr. Therefore Rahul Gandhi as a PM may deliver NYAY

  • Will middle class or common people be taxed?

Congress President Rahul Gandhi as well as other senior members of the Congress Party have categorically stated that common people will not be taxed. Income tax won’t be raised to fund Nyay scheme: Rahul Gandhi

  • Am I sure if tax will not be increased?

I am not really sure and I don’t work for Congress to be able to provide anymore information than what is stated in the news reports and Congress manifesto.

  • So, where will the money come from?

N.R. Bhanumurthy[8] , professor at National Institute of Public Finance and Policy, said that it could be a scheme wherein some of the non-functioning welfare schemes are subsumed. Such a plan may work, he added.


While that is a view of a knowledgeable Professor, let me bring out some hard data to make my point. Given below is the information taken from Union Budget 2019–20 which was presented by Mr. Piyush Goyal in February and is available at: UNION BUDGET

In the section on subsidies and subsidy related schemes , the first scheme is on Food Subsidy.

In 2017–18, the govt incurred Rs. 1,00,281 cr. on food subsidy. In 2018–19 budget, they estimated to incur Rs. 1,69,323 cr. My point is where did the Rs. 69,000 cr. extra money come from? No taxes were raised, right?

If we check the estimates for 2019–2020, govt expects to incur Rs. 1,84,220 cr. which is an increase of almost Rs. 13,000 cr. on food subsidy alone. So, without increases taxes, where did the money come from?

Similarly, for Petroleum products, the subsidy was Rs. 24,460 cr. in 2017–18 is expected to cost Rs. 37,478 cr. in 2019–20. So where did this money come from?

If we look at the grand total of all subsidies and related schemes, the govt spent Rs. 2,24,428 cr. in 2017–18 and expect to incur a subsidy burden of Rs. 3,34,234 cr in 2019–20.

So, without increasing taxes, where did Rs. 1,10,000 cr. extra money come from, to pay for all the subsidies?

Similarly, if we look at the same budget documents, there is a section called ‘Central Sponsored Schemes[10] for the year 2017–18 the total amount incurred was Rs. 2,84,944.42 cr. and for 2019–20, the estimate is Rs. 3,27,679.43 cr.

So, without increasing taxes, where did Rs. 42,000 cr. additional money come from?


Conclusions:

  • A balance is essential for inflation vs. growth; moderately higher inflation is not bad if the economic growth is 8+%. I would be willing to make that trade.
  • All the 4 engines of Indian economy are not doing well or have constraints due to various reasons. Some changes need to happen to spur credit growth, consumption, private investment, exports etc so that the pressure on Govt reduces, which automatically lessens the pressure on spending and revenue generation via taxation – direct or indirect both. This can improve the Fiscal Deficit from the current 3.4%.
  • MISP/NYAY scheme has a probability of being a game changer, provided
    • implementation is through the best possible methodology and some of the unnecessary schemes/subsidies are subsumed to reduce the planned amount allocation of Rs. 3.6 lakh cr.
    • along with giving money, Govt should mandatorily insist atleast one member of the recipient family to do paid work for the govt – in anyone of the 30 govt programs – https://www.indiabudget.gov.in/u… . This will help in ensuring that families don’t simply take govt/taxpayers money and sit idle. This can boost employment rates, which inturn can increase labor force participation rates.
    • no taxation burden should fall on any Indian whose income is less than Rs. 25,00,000 (Rs. 25 lakhs). There are around 6 lakh IT filers with taxable salary greater than Rs. 25 lakhs, who earn a total income Rs. 3,00,000 cr. in an year. So, even if an additional cess is levied for them alone, it shouldn’t hurt too much, but I don’t want even that to happen.
  • An additional spending of Rs. 6000/month or Rs. 72,000 / year by the poor families can boost the private consumption engine. Do remember that poor families mainly buy food, clothing, footwear, medicines etc as their first priority. This increases consumption, boosting the demand cycle, which will spur private companies to make investments. Hence, Private Investment can take a lead with reduced govt spending in unnecessary areas.
  • Govt spending can be allocated in a much better manner, to address core areas – Defense strengthening, Infrastructure development of roads, highways, ports, public education, and healthcare (hygiene & sanitation included).
  • After sometime, with increased income, that family will MOVE OUT of the NYAY scheme as they would be earning more than Rs. 72,000 per year. In this manner, the govt can ‘graduate’ off the poor people and improve their general standard of living. At that point, these people will start contributing to the economy directly – through employment or a small scale business etc. – PHASE OUT NYAY over a defined time period.
While there are lot of points that I can bring forward, I think it is time to stop the answer. Also, I am not sure if Congress will win enough seats, to be able to come to power, to implement MISP/NYAY scheme. We have to wait till 23rd May to know about that and even if they come to power, there might be issues on implementation but Rahul Gandhi as a PM May deliver NYAY

TOPIC: Rahul Gandhi as a PM May deliver NYAY ?

READ: Market after Election Result

Writer: Gopal Kavalireddy (A Data Maverick who trusts quality & numbers for investing )

politicalnits

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