Universal basic income: To go beyond political gimmickry, here's what govt needs to do

New Delhi - As the country’s economy recovers from the scars of demonetisation, the government has sought to float another trial balloon called universal basic income (UBI). The idea of a dole, to replace all other doles, on the face of it looks sound. But just like demonetisation, there is no equivalent large, sophisticated economy catering to a big population, which has tried it so far. And therein lies the need to tread with caution, and we are not even talking politically.

Should every Indian citizen, whether a wealthy industrialist or a street dweller, get a small amount each month from the government for subsistence? The Chief Economic Advisor to the government, Arvind Subramanian, spoke to a newspaper at length on this novel idea recently and said also said that this year’s Economic Survey will examine issues involved in a Universal Basic Income (UBI) scheme.

 Universal basic income: To go beyond political gimmickry, heres what govt needs to do


The CEO of Niti Ayog has also urged the government to examine the need for UBI. Speaking to CNBC-TV18, Amitabh Kant said UBI is definitely one of the options before the government but it requires extensive research and debate. He further said that any such scheme should be looked at in the context of the existing rural employment guarantee scheme MNREGA and food subsidies under the Public Distribution System (PDS).

“In MNREGA there have been leakages...the PDS again is riddled with corruption. The government needs to think if it is better to put money directly into individual accounts...and do away with PDS, MNREGA...put resources generated through taxes and penalties in UBI”.

In this article Subramanian says through the proposed new scheme the Modi government is considering giving unconditional cash transfer of about Rs 10,000-15,000 on an annual basis to each and every citizen in the country.

So why is India even considering a universal basic income, when world over even developed countries are still examining the idea and its pitfalls? The driving force for providing a minimum level of sustenance to each citizen seems to emanate from the growing realisation that the nature and availability of jobs has altered significantly around the world. There are fewer jobs due to increasing automation and then, there are more of these jobs which require higher skills, higher pay. For India, the situation has been particularly grim over the last two years as job creation has been at abysmally low levels even when the economy was galloping.

In this article in The Wire, BJD MP Jay Panda – who advocated UBI much before demonetisation – says the new economy of the 21st century - not just in India but everywhere in the world - is having a lot of automation and robotics, which means job creation is much less than before. For example today, if we have 7% growth rate in the Indian GDP, it creates less jobs than 7% growth rate would have created in 1990s. He refers to the World Bank estimate of 68% of existing jobs in India being under threat in the coming 10 or 20 years due to technology.

“Because of automation and robotics, even factories which used to employ hundreds of people today can manage with only five or seven people because they use robots for manufacturing.”

In essence, the inability to create the required number of jobs at a pace which matches India’s GDP growth could be the trigger for a UBI scheme being announced in the forthcoming Union Budget.

Not everyone is gung ho about this prospect though. Professor of Economics at JNU, Jayati Ghosh, told Firstpost that if the government was serious about helping citizens, “it would begin with implementing a universal basic pension first, at half the minimum wage”.

This would mean a monthly pension of Rs 3,000-4,000 against a barebones Rs 200 that is now being paid every month – and even this amount is not universal but targeted pension.

Can India afford another large welfare scheme under its current budget? Well, different economists have pointed out that it could cost anywhere up to 10 percent of the GDP. An editorial in the Business Standard newspaper this morning says UBI, based on existing definition of the poverty line, as calculated by Maitreesh Ghatak, could cost upwards of 10 percent of GDP when existing subsidies already account for 4.2 percent of the GDP.

This basically means 1) instead of making it a universal dole, the government could look at providing this money to the poor already identified instead of providing this to each of the roughly 1.3 billion Indian citizens; 2) it could simultaneously do away with subsides and schemes like PDS and MNREGA.

Ghosh says no current welfare scheme should be sacrificed at the altar of UBI. “A UBI cannot be the substitute for provision of food, education and healthcare to the citizens”.

This article in the Mint newspaper says an acceptable level of the UBI could be an income equivalent of the poverty line (the Tendulkar committee poverty line), which is about Rs 1,090 per month for each individual, in 2015-16 prices. The total cost of providing this income to all Indians would amount to 12.5 percent of GDP, which is nearly equal to the size of the Union Government’s budget.

“Thus, such a UBI which provides poverty line-equivalent income to all Indians does not appear to be feasible because of budget constraints...the subsidies which are already burdening the Indian taxpayer are, more often than not, helping the rich.”

Perhaps the answer to the UBI conundrum lies in getting the aim of the exercise crystal clear first and then figuring out where the resources for such a scheme will be generated from. It is obvious that in the current scenario, running food subsidy and guaranteed employment programmes cannot continue if a UBI is to be also given. Besides, as Ghosh has pointed out, if the UBI sum turns out to be a pittance like the pension pittance, it would become more a political gimmick than a scheme to address poverty.

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Updated Date: Jan 31, 2017 13:34:42 IST