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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

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