Skip to main content

Will Universal Basic Income replace a string of welfare subsidies for India's poor?

By Moin Qazi*
Universal basic income (UBI) is an old idea that is gaining traction as governments look to revamp their social safety nets. India is the most serious new aspirant. India is actively weighing the idea and the main opposition Congress has already promised that it will implement a variation of a universal basic income (UBI) targeted at 50 million families if it wins the country’s upcoming national election.
In a UBI system, the government gives citizens a regular infusion of free cash with no strings attached. If implemented, India would join Finland in providing free money to its citizens. However, in terms of the Congress’ promise the poor will continue to draw other social benefits. There is not much evidence of UBI’s potential, and it would be a drastic step to adopt it with little proof that it works.
UBI is a broad, non-targeted periodic cash payment unconditionally delivered to all, rich or poor, on an individual basis. The idea is to ensure that every person in society has the means to live with a modicum of freedom and dignity, independent of one’s capacity to earn or the availability of employment.
Cash transfers are not tied to the recipients’ behaviour, and they are free to spend the money as they wish. In contrast, an example of a conditional, in-kind transfer in India would be the mid-day meal scheme, where the meal — an in-kind transfer — is conditional upon attending school. The congress party’s idea is of a Quasi Basic Income with cash transfers to the poorest one fifth of the population.
The basic objective of UBI is to reduce inequalities on account of distribution of wealth and other assets. Inequalities of income arise from:
  • inequalities in human capital (levels of literacy, skills health, etc.),
  • inequalities in opportunities (in education, jobs, etc.), and 
  • inequalities in living conditions. 
The idea of a UBI has made recurrent appearances in history – starting with Thomas Paine in the 18th century. UBI is premised on the idea that the government would pay a flat fee to every adult citizen, regardless of his or her engagement in skill-building activities or the paid labour market, as a partial or complete substitute for existing social security and welfare programs.
However, UBI can be a useful tool if it is not guided by bad political intentions. The late French philosopher Charles Pguy remarks, in his classic essay on poverty:
“The duty of tearing the destitute from their destitution and the duty of distributing goods equitably are not of the same order. The first is an urgent duty, the second is a duty of convenience... When all men are provided with the necessities what do we care about the distribution of luxury?”
Envy should not be the motive for equalization of wealth .We need to have a more nuanced understanding of the issue.
The debate had also been raised earlier when India’s economic survey of 2016-17 had broached the subject of a UBI. “…(UBI is more feasible) in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains,” the survey said.
Kinjal Sampat and Vivek Mishra, researchers at the New Delhi-based Centre for Equity Studies, have tried to estimate the cost to the exchequer. As per their calculations, the total intended expenditure of the Central government in the financial year 2016-17 on various welfare schemes amounted to Rs 3.62 lakh crore or about 2.4% of India’s GDP.
Assuming the same amount is allocated for UBI for the population that is below the poverty line, every person would be entitled to Rs 12,669 a year (lower than the minimum wages legally granted). This excludes the cost for administering the scheme which will, in turn, reduce the entitled amount.
If this scheme were to be made quasi-universal in nature, and expanded to 75% of the population, as suggested in the economic survey, then every person would be able to get only Rs 4, 000 yearly. Else, the expenditure outlay for the scheme will have to be increased four times to Rs 11,50,00 crore which may take a toll on the government’s budget.
Around 21.9% of Indians are believed to fall below the poverty line, according to World Bank analysis of data from the most recent census in 2011.The Congress’s plan is to provide a yearly income of Rs 72,000 to twenty percent families. Accordingly the arithmetic will change.
Economists published an insightful chapter on UBI in India’s 2016-17 Economic Survey. It argued that UBI is “...more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gain."
Former chief economic advisor Arvind Subramanian said in the Economic Survey: “UBI is a very new compelling idea. It has a lot of challenges. But, it is an idea whose time is ripe for further deliberation and discussion and not necessary for immediate implementation."
The Economic Survey dedicated a full chapter to UBI, noting that it can reduce poverty to 0.5 per cent at a cost of about 4 per cent to 5 per cent of the GDP, if those in the top 25 per cent income bracket are not included.
UBI offers less scope for corruption than most anti-poverty schemes, because all individuals are entitled to the same amount of money. Moreover, the digital payment mode leaves no scope for middlemen to sponge funds. The recent transfer of government’s first tranche of basic income into farmers' accounts was accomplished very seamlessly.
There are several downsides: Recipients might misuse the money they receive; it will induce people to work less or create a disincentive to work. In the words of Thomas Piketty, renowned French economist:
“The cost of substantial fiscal redistribution would be considerable, because it would decrease the return on investments (for individuals) in human capital and thus decrease the incentives for individuals to make such investments …”
A UBI guarantees that people will not be impoverished, will not go hungry, and will be protected from job loss due to automation while cutting the need for many other forms of social security.
A basic monthly income can also replace a string of welfare subsidies for the poor that India currently has in place, although the Congress has been very clear that it has no intention of tinkering with them. Getting a guaranteed, regular infusion of cash can certainly l make people happier and less stressed (even if that cash isn’t enough to cover all their needs). Yet most countries aren’t doing it.
In India, over a hundred schemes are delivered to the same set of beneficiaries through mutually insulated administrative silos, each set up by Central government ministries jealously intent on guarding their respective fiefdoms. Thus a convergence of these schemes at the point of delivery is made virtually impossible.
This negates any positive effect that would operate if the beneficiaries themselves were to have the authority to plan the utilization of these resources and match them to their own priorities.
One of  ways planners have suggested reducing the expenditure on social programs is to offer a monthly basic income to only those families that fall below the poverty line. This money would be structured as an interest-free loan that would have to be paid back within three years. Structuring the payments as loans would allow the money to be recycled through the system as families exit poverty. It would also help pay for the programme.
However, Jean Dreze, one of the chief architects of Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), feels that a universal basic income will displace “well functioning” social welfare programmes, such as MGNREGA. But proponents of UBI argue that much of the money in the current system is funnelled through the convoluted bureaucracy and ends up leaking to non-poor and corrupt local actors.
Although India is a good case for basic income, there are several challenges. The leadership class repeatedly turns to policies that sound appealing but are doomed to fail -- and then their failure ensures that the country won't face the issue head on. The rulers will have to change course and shift away from the legacy mindset to get things right.
---
*Member of NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women. Contact: moinqazi123@gmail.com

Comments

GRP said…
What's better than an unconditional Basic Income (BI) of $X/week? A punitive "vacancy tax" on vacant land and unoccupied buildings, which property owners are so keen to avoid that it *reduces rents* by $X/week. Why is this better? Because:
(1) Nobody asks where the money is going to come from. (And the tax, in order to do its job, need not raise any revenue.)
(2) By definition, the benefit of lower rents isn't competed away in higher rents — as a BI would be. (You don't see this problem with "pilot" basic incomes; but you *will* see it if the BI becomes universal.)
(3) Avoidance of the tax generates job-creating activity. Moreover, if jobs are to be created, the employers must be able to afford business accommodation, and the employees must be able to afford housing within reach of their jobs on wages that the employers can pay. Lower rents therefore create jobs — reducing the need for a BI.
(4) If the reduction in rents doesn't serve *all* the purposes of a BI, it reduces the size and cost of the BI needed to serve the remaining purposes.
(5) The economic activity driven by a vacancy tax broadens the bases of other taxes, allowing their rates to be reduced — offsetting the tax impact of a BI, if you still want one!

Gavin R. Putland,
https://t.co/0fn79PXAh3

TRENDING

Mystery around Gujarat PSU 'transfer' of Rs 250 crore to Canadian firm Karnalyte

By AK Luke, IAS (Retd)*
While returning from a Board meeting of the Oil India Limited (OIL) in Ahmedabad some time in 2012, two officers of the Gujarat State Fertilizers and Chemicals Ltd (GSFC), Nanavaty and Patel,  saw me off at the airport. They said they were proceeding to Canada in connection with a project GSFC had entered into with a company there. As we were running late, I hastily wished them the best.

J&K continues to be haunted, as parts of India 'degenerate' into quasi-Kashmir situation

By Rajendran Narayanan*, Sandeep Pandey**
“Jab har saans mein bandook dikhe toh baccha kaise bekhauf rahe?” (How can a child be fearless when she sees a gun in every breath?) remarked Anwar, a gardener from Srinagar, when asked about the situation in Kashmir. On November 30, 2019, a walk through an iron gate in a quiet neighbourhood of Srinagar took us inside a public school. It was 11 am when typically every school is abuzz with activity. Not here though.

Savarkar in Ahmedabad 'declared' two-nation theory in 1937, Jinnah followed 3 years later

By Our Representative
One of the top freedom fighters whom BJP and Prime Minister Narendra Modi revere the most, Vinayak Damodar Savarkar, was also a great supporter of the two nation theory for India, one for Hindus another for Muslims, claims a new expose on the man who is also known to be the original proponent of the concept of Hindutva.

Indians have made 119 nations their ‘karma bhumi’: US-based Hindu NGO tells Rupani

Counterview Desk
In a stinging letter to Gujarat chief minister Vijay Rupani, the US-based Hindus for Human Rights (HfHR), referring to the report citing his justification for the Citizenship Amendment Act (CAA) – that “while Muslims can choose any one of the 150 Islamic countries in the world (for residence), India is the only country for Hindus" – has said, he should remember, Hindus have made several countries, including USA, their home.

Dalits rights meet planned on how citizenship law 'negates' Ambedkar's equality focus

By Our Representative
A Dalit rights meet has been planned at the Dalit Shakti Kendra (DSK), Sanand, Ahmedabad district, to discuss implications of the Citizenship Amendment Act (CAA), passed by Parliament on December 10-11, for Dalits, Adivasis and other marginalized sections. Announcing the decision, DSK director Martin Macwan said, the meet would take place on December 25, 2019, at 11.00 am, to commemorate the anniversary of burning of copies of Manusmriti by Dr BR Ambedkar.

What about religious persecution of Dalits, Adivasis, asks anti-CAA meet off Ahmedabad

By Rajiv Shah
A well-attended Dalit rights meet under the banner “14 Pe Charcha” (discussion on Article 14 of the Indian Constitution), alluding to Prime Minister Narendra Modi well-known campaign phrase of the 2014 Parliamentary elections, “chai pe charcha” (discussion over cup of tea), organized off Ahmedabad, has resolved on Wednesday to hold a 14 kilometres-long rally on April 14 to oppose the controversial Citizenship Amendment Act (CAA), enacted on December 10-11.

Upendra Baxi on foolish excellence, Indian judges and Consitutional cockroaches

By Rajiv Shah
In a controversial assertion, top legal expert Upendra Baxi has sought to question India's Constitution makers for neglecting human rights and social justice. Addressing an elite audience in Ahmedabad, Prof Baxi said, the constitutional idea of India enunciated by the Constituent Assembly tried to resolve four key conflicting concepts: governance, development, rights and justice.

Tata Mundra's possible closure? Power ministry's 'pressure tactic' on consumer states

By Bharat Patel*
Tata power has announced to the Union Ministry of Power that Tata Power may be forced to stop operating  its imported coal-based Mundra Ultra-Mega Power Project (UMPP) after February, 2020. It is not only unfortunate but also criminal that irreversible damage has been caused to the fragile ecosystem of Mundra coast for a project that will have a running life of only seven years.

Population control? 10% Indian couples want to delay next pregnancy, but fail

Counterview Desk
Shireen Jejeebhoy, director at Aksha Centre for Equity and Wellbeing, previously senior associate at the Population Council, India, argues that the debate on the country's population was fuelled by Prime Minister Narendra Modi’s Independence Day address to the nation, where he drew attention to “concern” about the challenges posed by this ‘exploding’ population growth, needs to centre around the promotion of rights and education, instead of the language of explosion and the threat of coercion that this term implies.