Editorials, Uncategorized

Is India Ready For A Universal Basic Income Scheme?

Even after three decades of sustained economic growth and a proliferation of welfare schemes, roughly one in three Indians still live below the poverty line, according to the last report on poverty estimates submitted by the Rangarajan committee in 2014. While those estimates have been questioned, the fact remains that there is little dispute over the fact that too many Indians remain trapped in poverty.

  • There are hundreds of poverty alleviation programmes in India, from housing to food, from maternity benefits and child-welfare to old-age support. However, these schemes are beset with problems that limit their effectiveness.

 

Some of the problems faced by these schemes include:

  • Problem of eligibility: There are always inclusion and exclusion errors. Often, those who should not be getting a benefit, get it (inclusion errors), while those who should be getting it, don’t get it (exclusion errors).
  • Leakage problem: Problem of leakage, wastage, and corruption in the delivery process also affect many welfare schemes.
  • Implementation problem: There is no uniformity in implementation across states. This eats up considerable manpower and resources.
  • Subsidies problem: Some of these schemes involve subsidies that benefit the non-poor relatively more, since they consume more of the relevant good or the service. Power subsidy is the best example for this.

 

The persistence of poverty and significant leakages in welfare schemes that aim to alleviate it has prompted many academics and policymakers to explore more efficient alternatives to India’s creaky and leaky welfare architecture. One of the suggestions has been to move towards a “universal basic income”.

 

Universal Basic Income:

The idea is already gaining currency in the developed world, as fears of automation and consequent job losses have spurred thinkers in the West to devise ways wherein all individuals would be guaranteed some income.

 

What is Basic Income?

A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement. It is a form of minimum income guarantee that differs from those that now exist in various European countries in three important ways:

  1. It is being paid to individuals rather than households;
  2. It is paid irrespective of any income from other sources;
  3. It is paid without requiring the performance of any work or the willingness to accept a job if offered.

 

Background:

Although it has gained popularity in recent years, the idea itself is several centuries old. One of the earliest proponents of some form of basic income was Spanish philosopher Johannes Ludovicus Vives, who proposed that the government should ensure the minimum level of subsistence for all, but only to those who showed willingness to work. Thus, Vives’s idea of a basic income was not unconditional.

  • Subsequently, many other philosophers explored variants of the idea of basic income, not necessarily always drawing inspiration from or building upon previous work.
  • Thomas Paine, one of the US’s founding fathers, argued that every person was entitled to an equal basic endowment because “the earth, in its natural, uncultivated state was the common property of the human race”.
  • However, this concept of equal endowment was, in his view, somewhat violated by the system of landed property. Therefore, property owners ought to contribute to a fund that could be redistributed to everybody, including the rich and the poor, Paine wrote.
  • Years later, British philosopher and mathematician Bertrand Russell, in his 1918 book Roads to Freedom. Socialism, Anarchism and Syndicalism, argued that “a certain small income, sufficient for necessaries” should be unconditionally provided to all.

 

The universal basic income, as it is understood today, has three distinguishing characteristics:

  • First, it is universal and not targeted. In the Indian context, this makes sense because of the less-than-satisfactory experience with targeting welfare services. Apart from the standard arguments against targeting—that it often excludes a lot of the deserving households from receiving subsidies, people often fall in and out of poverty and therefore it becomes difficult to ascertain who are rightfully entitled to receive such benefits. Thus, a “universal” programme would not only be more appropriate, it will also reduce the burden of the bureaucracy in so far as it is engaged in identifying the deserving beneficiaries of any targeted programme.
  • The second feature of any proposed universal basic income scheme is cash transfer in lieu of in-kind transfer. There are standard arguments in favour of cash transfers over in-kind transfers (food stamps or grains provided through the Public Distribution System) as they are supposed to be much less market-distorting than in-kind transfers.
  • The third distinguishing feature is that it is unconditional. Cash transfers are not tied to exhibiting certain behaviour, and the people are free to spend the cash as they want. An example of 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.

 

Thus, the universal basic income seeks to provide unconditional cash to every individual, or household, and the individuals would be free to use the cash as per their discretion and spend according to their own preferences. Thus, the movement for a universal basic income has attracted support from both the left and right ends of the political spectrum.

 

What are the main arguments against a universal basic income?

  • It would reduce the motivation for work and might encourage people to live off assured cash transfers.
  • It is simply unaffordable. As it is estimated paying a basic income equivalent to the poverty line, to each and every adult in India, would entail a cost of 11% of GDP, which is way above the 4.2% of GDP that the government currently spends on explicit subsidies. (Explicit subsidies mean the subsidy cost under the Public Distribution System, fertilizers, railways, electricity, sugar, LPG, kerosene and water).
  • It is also argued that unconditional cash transfers might raise wages due to the decline in the supply of casual labourers.
  • There is also question of whether a shift towards it should be a substitute for all existing subsidies or whether it should complement the existing ones.

 

In discussing the merits and demerits of the UBI or any other development policy, it is important to avoid some standard pitfalls.

  • First, all policies have some pros and cons, and so just picking a problem with or highlighting a nice feature of a particular policy is not good enough. That traps us in an elusive search for “win-win” policies. The focus should be on relative costs and benefits of different policies.
  • Second, one size does not fit all. We should be open to the possibility that different policies could work well in different contexts. Cash transfers only make sense if you have ready access to markets, which is not true if you live in remote rural areas in which we have to rely on in-kind transfers.
  • Third, there is no magic pill that will cure all problems. Different policies are needed to address different problems. So yes, a UBI or a cash transfer as envisaged by JAM or the MGNREGA will provide some relief to the poor, but will not provide a long-term solution to the problem of poverty. For that one needs investment in health, education, and skill-formation to enable the poor to take advantage of growth opportunities, and investing in infrastructure and regulatory conditions to facilitate private investment for employment generation.

 

Way ahead:

While some of the challenges of implementing a basic income can be met with the better use of technology and an expansion in banking services, the challenge of affordability remains. How far existing welfare schemes can be trimmed without hurting the poor, and how much public resources can be saved to implement the scheme remains an open question.

  • The required budgetary resources could be raised by trimming the implicit and explicit subsidies to the rich (often in the form of tax breaks or subsidies given to goods largely consumed by the relatively well-off), or by raising additional taxes by improving property tax collections (currently extremely low).

 

Conclusion:

Few regard UBI as a simple and potentially comprehensive antidote to poverty. It is also viewed as a means to demolish complex welfare bureaucracies while recognizing the need for some social transfer obligations in a way that doesn’t weaken incentives significantly

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