Universal basic income (UBI) was only an economist’s wishful thinking and till now a theoretical idea that prominently appeared in the 2016-17 economic survey. But with Congress President Rahul Gandhi making it official that his party will endorse minimum income to all adult citizens if voted to power in 2019 general elections, the UBI is no longer a theory but a real near-term possibility.
It also tells us that the dangerous politics of free money is the final answer Indian politicians have found to bring prosperity to a nation that has so far failed to generate enough jobs even for the educated youth, has worryingly high level of income inequality, has no system in place to sort out a developing agrarian crisis and is yet to learn the trick to combat gross unemployment. Before discussing UBI, let’s look at where India’s 1.3 billion population stands in the economic hierarchy.
According to a recent Oxfam study, the divide between poor and rich in India is already too big and widening even further. The bottom 60 percent of the population own merely 4.8 percent of the national wealth. One major reason for such divide is the lack of availability of factory jobs even to the skilled youth. Unemployment has been on the rise.
According to Centre for Monitoring Indian Economy (CMIE), India lost 11 million (1.1 crore) jobs in 2018 alone. Separately, a Business Standard report on 2016-17 Labour Bureau's Sixth Annual Employment-Unemployment Survey shows that unemployment in India rose to a four-year high in 2016-17 at 3.9 percent as against 3.7 percent in 2015-16 and 3.4 percent in 2013-14.
On the other hand, an agrarian crisis is brewing. As per the census of 2011, 263 million people are engaged in the agriculture sector and over half of them are now agricultural labourers. Now the problem is that this job is not so rewarding as a services sector job or a manufacturing job.
India doesn’t have a robust market infrastructure to assure the farmer that he will able to market his produce in a manner that benefits him. In such a scenario, the over-dependence of the population on the farm sector makes sure that income appreciation remains only as a hope. India is growing at close to 7 percent even now but the fruit of GDP growth is too small to go around in a country of 1.3 billion, where one-third of the population (going by the C Rangarajan panel) is estimated to be in the poor category.
Will the government providing a minimum income for all adult citizens offer a cure to the economic woes India currently faces? Consider the following points:
One, India already has nearly 950 centrally sponsored schemes. These schemes target the economically weak in each area and assist them through state funding. It is nearly impossible and unwise to go back from this targeted approach and fix minimum income to all because then the purpose of addressing specific problems is lost.
The first is about empowering needy with targeted assistance and the second about destroying the incentive to work and excel, not looking at specific segments of economically distressed.
The moot question here is whether this idea will help the nation to grow the skill-level of the people and become a more efficient society or do we want to become a nation of freebies where the bottom half would be in no hurry to grow their skills because they know the government anyway will give them free money. This will be counterproductive in the long-term. There are good chances that households will end up using UBI money for consumption, not for education or skill development.
Two, clearly, India doesn’t have the fiscal resources to implement such a large populist scheme with scant revenue resources. The 2016-17 economic survey had estimated that implementation of UBI will cost India 4.9 percent of the GDP. Even though this is lesser than what the centre presently shell out for various schemes, replacing close to thousand schemes with minimum wages to all isn’t a good idea.
Also, as Firstpost columnist, Madan Sabnavis, argued in this column, the fiscal liability will be huge on the state. “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!,” Sabnavis has said in the column.
But the bigger problem is not the fiscal liability. Gandhi’s comment re-emphasises that Indian politicians give far greater weightage to freebies and will go to any extent to win votes by totally undermining good economics. The idea seems to be throwing free money to all. The strategy Gandhi is now relying on is UPA’s old trick of pushing social welfare schemes to win hearts and votes.
There is no national roadmap on skill-development or creation of more jobs. No one is interested in finding structural reforms to revamp the agricultural market infrastructure so that the farmer is able to sell his produce in a way that he gets the fair value for the crop. Similarly, there is no talk on how to generate private investments by addressing problems in labour, land acquisition laws. Of course, UBI isn’t the first free money scheme; we already have seen a series of farm loan waivers where yet again politicians chose to appease the vote bank with instant, a temporary solution rather than empowering the distressed with a long-term view.
No major country in the world, India can be compared with, has implemented the idea of universal basic income in its naked form. This is not even a desirable option for a developing, fiscally-constrained, immature economy like India which needs to focus more on investing in skills, education and employment creation.
The merit of a political party is now decided based on how bigger is their plate of freebies, not on a long-term vision they offer to build the nation. That’s sure good politricks but damning economics. The poor Indian needs avenues to grow his skills and earn his income, not begging bowls.
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 15:54:20 IST