The Congress party’s NYAY (Nyutam Aay Yojana) or Minimum Income Guarantee Scheme is under intense scrutiny. Critics have raised important questions about its viability, delivery mechanism and potential benefits to the poor. Three questions, in particular, are incessantly repeated: Can the government afford the estimated sum of Rs. 3.6 lakh crore? Where’s the money going to come from? Will taxpayers bear the burden of the scheme?
Even those in support of the scheme end up answering this question defensively. They argue that the scheme is implementable within the “available fiscal space” or in “full accordance with fiscal discipline goals.” This pervasive but perverse narrative must change – not just when it comes to NYAY but other schemes of the government as well.
The framing of concerns that arise from the implementation of such schemes must also shift from the financial constraints of the government to real resource constraints faced by the economy. The present narrative that harps about fiscal constraints arise from extending commonsensical notions about household and business indebtedness to the state. While it is true that prudence and avoidance of bankruptcy require individuals and businesses to spend within their means, this simplistic logic, when extended to the government, leads to a warped understanding of the present monetary systems and macroeconomic policies.
A sovereign government, economically speaking, can never go bankrupt in its currency because it has the monopoly over issuing that currency. To meet their social objectives, governments seek to transfer real resources from the private to the public sector. This is done through the issue of currency (promissory notes or liabilities) by the government in exchange for resources.
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