I fear this budget. I fear that Finance Minister Arun Jaitley might announce an idea that I have liked and advocated: The idea of a Universal Basic Income. I fear it because Jaitley may use this label to justify something quite the opposite. In the process, he might ruin a good idea.
Straws in the wind indicate that he might try something to this effect. Demonetisation was part of a grand political design of Garibi Hatao, version 2.0. The idea was to give a nicely wrapped gift to all the poor and engineer an enduring realignment of poor voters towards Modi. Now that most of currency is back in the banks, there is no money to buy that gift. Plan A has failed. The PM is desperately working out Plan B.
The Budget speech would be the last occasion before pains of demonetisation begin to weigh too heavily. It may also be an opportune moment to influence the outcome of Punjab and UP elections, now that the Election Commission has agreed to be a mute spectator to this unusual timing of the Union Budget. There is both pressure and temptation to announce something big, radical and populist. Some economists close to the government are hinting that this big measure could be Universal Basic Income.
Universal Basic Income is a very simple idea: Every citizen receives a fixed amount of income from the government on a regular basis. There are many versions of this idea but some features are common to most of the versions. One, its coverage is universal and includes every citizen without any distinction. Two, it is unconditional. Three, the income so transferred is enough to cover basic needs. Four, the transfer is in cash, not in kind.
It’s not a woolly-headed mega dole scheme that it might seem initially. Some of the best economists advocate it because they find it a smart method for ensuring social welfare. An assured income supplement is the surest way to protect the most vulnerable sections of our society. We have a very large proportion of poor and notoriously unreliable ways of distinguishing the poor from the not-so-poor. Hence it is best to offer benefits to everyone, including the few who do not deserve it. This can help cut down on many of the very inefficient and corrupt subsidies being offered to the poor. Direct cash transfer has the benefit of cutting down on bureaucracy and infrastructure. Small experiments suggest that poor families don’t blow away additional cash. They use it more wisely that the government would on their behalf.
The trillion rupee question is: Can our government afford it? If the Basic Income is kept at Rs 1,000 per person per month, we are talking about an annual expenditure of Rs 15 lakh crore, about three-fourths of the Union Budget last year. Clearly this is unaffordable, even if we bring down the amount by one-half, unless we make some fundamental changes to our revenue generation and expenditure pattern. To this end, many economists have suggested some of these steps.
One, increase tax revenue by widening the tax net, not by increasing the tax rate. Demonetisation provides a good opportunity to do so, now that all the money is in the banking system. Two, introduce wealth tax like many other countries and end the income tax exemption given to agriculture for income beyond, let us say, Rs 1 crore. Three, cut down on avoidable government expenditure on defence import. Four, do away with many of the tax-breaks and concessions extended to rich corporates. Five, wind up or prune some of the most leaky and corrupt welfare schemes and replace them with direct cash transfer.
Economists have calculated that all these measures could yield a surplus of 9 percent to 12 percent of the state GDP, enough to fund this scheme. But it won’t happen overnight. A lot of preparation must go into the making of a scheme like this one.
Why do I fear its announcement in the coming budget? I fear that what we would get is not Universal Basic Income, but a parody. From the signals that one can pick up, what the government is thinking about is neither universal nor basic income. This government does not have either the patience to prepare for this scheme or the political will to gather resources required for this. There are no signs of an appetite to cut down on the tax-breaks and subsidies enjoyed by the corporates and the well-to-do. So, it might go for limiting this scheme to the 'poor'. The trouble is that there is no way of identifying the poor that escapes whims of the patwari or the sarpanch. The whole point of universal income is to avoid this trap. Since the government may not have the resources to give money that covers basic needs, it may offer a minuscule transfer that does not pull the extremely poor out of the trap of poverty.
I fear something worse. This small cash transfer to a small proportion of the 'poor' may be used as a justification to dismantle many of the ongoing welfare programmes like the Public Distribution System for foodgrains and the MNREGA. Now, both these programmes suffer from leakage and corruption and need serious reform. But at this stage we are not in a position to replace these programmes with cash transfer. The results of some of the experiments have not been encouraging. If these programmes are diluted without adequate and assured cash transfer, then it will be a double whammy for the poor, already suffering from the consequences of demonetisation. If this is the version of Universal Basic Income that Jaitley has in mind, then God save us from this scheme.
What, then, should the Finance Minister focus on? First of all, this should be the budget for compensating the poor – farmers, daily wage earners, petty traders – who have taken a real hit due to demonetisation. Second, the government should come up with a long-term measure to address agrarian distress. The farmers desperately need a scheme for assured returns to their labour. Three, some of the basic welfare measures like maternity benefits and old age pension are waiting universalisation and effective implementation. Four, there is an urgent need to pump in more resources into education, health and irrigation.
I would prefer these announcements over Universal Basic Income becoming another jumla.
The author is a psephologist, socio-political analyst and National President of Swaraj India
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Updated Date: Jan 30, 2017 14:06 PM