With general elections coming this year and all parties keen to reach out to the poor for their votes, it is but natural that the pitch is being made to giving an income to them directly. The Congress party president Rahul Gandhi has now given this assurance that the poor will get a transfer if it comes to power. How feasible is this idea?
"The Congress has decided to take a historic decision... The Congress-led government is going to give a minimum income guarantee. This means each poor person in India will have a minimum income. This means there will be no hungry, poor people in India," Gandhi said on Monday at the Kisaan Abhaar Sammelan held in Raipur.
The idea of a universal basic income (UBI) is not really new and entered the Economic Survey in 2016-17. If the concept is universal, then it means that everyone is entitled to this income and suppose the World Bank's new threshold of $1.90 per day is used, it would mean Rs 133 per capita per day (approximately Rs 50,000 per annum) which will translate to a daily cost of Rs 17,300 crore of outflow for 130 crore of population! This will be a humongous amount on an annual basis and hence cannot be universal but targeted to the lowest section. Assuming this holds for only 20 percent of the population, then the cost of the scheme will be Rs 12.6 lakh crore per annum or around half the size of the Union Budget. This is not workable for sure.
Quite clearly the UBI in a modified form of not being ‘universal’ but ‘specific’ will not be a unique scheme but a regrouping of existing schemes into this basket as there is no excess money in the system.
This has been done for various social schemes in the past by different governments where new schemes announced under various names replace existing schemes on schooling, health, girl education, irrigation, insurance, environment, seeds, women, and backward castes and so on. The allocations follow the same path though there are variations in the specifics of the schemes. This is how government budgets work as the state is not a panacea for all problems.
The UBI in a way would then be a direct benefit transfer (DBT) scheme where a targeted household is given some money and asked to spend on whatever it wants. This gives freedom to the individual though there would be diversion based on social norms followed. A poor family may prefer not to send their daughter to school and use the money for something else which otherwise would have had the child going to the school when the mid-day meal scheme was in operation.
As it is not possible for the UBI to be universal or even specific without merging existing schemes, it would be necessary to see which ones can be merged and the resources used for the modified UBI programme.
All social and economic schemes cannot be merged because a large part of the Budget is quite committed through salaries (teachers, doctors, nurses etc.). For example, the Rs 24.4 lakh crore of total outlay for FY19, around half is used for the establishment and interest payments, while another Rs 3 lakh crore is for capex. Another Rs 3 lakh crore goes as revenue expenditure of the Defence Ministry while centrally-sponsored schemes and other transfers are around Rs 5 lakh crore. Therefore, there is not much room left except for subsidies and employment programmes which are big ticket ones.
A conundrum for the government (not just this one, but any government) would be if existing schemes are to be done away with and the amounts transferred to the UBI fund, what would happen to the machinery that is attached to the schemes. This holds especially true for the Food Corporation of India (FCI) for instance, which is the nodal agency for procuring food grains.
Attached to the food subsidy are the warehouses that store these grains and the Fair Price Shops (FPS) which are the consumer touch-points. If the government wants to give only cash transfers, then the entire procurement system has to be changed where limited quantities are taken from farmers only for buffer stocking. The ration shops (FPS) have to be turned into private shops that have to fend for themselves. In fact, there are over 5.3 lakh outlets which have to reinvent themselves. The same would hold for the ministries involved which have to redeploy staff as not much will be required in the new scenario.
Further, some schemes like say Ayushman or Bima Fasal cannot be merged after being just launched and hence will have to continue. In fact, a change in guard will mean that priorities can be different. Ideally, the states should also be merging schemes into this UBI fund for higher coverage. But politically this may not be feasible as states would like to push forward their priorities.
MGNREGA is probably an easier scheme to integrate and probably makes sense too as there are allocations of Rs 55,000 crore which goes anyway for less productive purposes. But this can cover only around 11 million individuals going by the $1.90 perday formula. This is not much but can be an easy beginning. Identification will, however, be a challenge as well as finally managing the transfer as the poorest would not be having any of the JAM facilities—Jan Dhan account, Aadhaar identification and mobile phone.
A major problem in merging schemes is that on paper all of them are well-targeted though the implementation is poor. A mid-day meal scheme ensures children go to school and the same holds true for girl children. Ration shops ensure that grains are provided while a cash transfer can lead to diversion of money for liquor by the man of the household. This is the reality and cannot be brushed aside. By merging schemes to provide for a basic income, other objectives of the government will have to be skipped.
This really means that while the budget of the Centre or states can talk of such an approach, there are no incremental funds available given the other responsibilities like the creation of infrastructure besides the fixed commitments.
Moving money from one scheme to the UBI will also erode scope for future sloganeering and hence is unlikely to be touched. DBT works when it comes to pensions, but when used for food grains can lead to chaos in institutional structures if done on a wide scale as prices would move up once the entire populace rushes to the market to buy rice or wheat. Therefore, UBI will have to start as rhetoric and can only be gradually introduced with states also giving their buy-in. This is the only way to make it work.
(The writer is Chief Economist, Care Ratings. He is the author of: Economics of India: How to fool all people for all times)
To keep watching India’s No. 1 English Business News Channel – CNBC-TV18, call your Cable or DTH Operator and ask for the Colors Family Pack (inclusive of 24 channels), available for Rs. 35/- per month, or subscribe to the channel for Rs. 4/- per day.
To keep watching the Leader in Global Market & Business News – CNBC-TV18 Prime HD, call your Cable or DTH Operator and ask for the Colors Family HD Pack (inclusive of 25 channels), available for Rs. 50/- per month, or subscribe to the channel for Rs. 1/- per day.
Firstpost is now on WhatsApp. For the latest analysis, commentary and news updates, sign up for our WhatsApp services. Just go to Firstpost.com/Whatsapp and hit the Subscribe button.
Updated Date: Jan 29, 2019 07:41:50 IST