Insights into Editorial: The hidden agenda of benevolence
Ahead of the forthcoming budget on February 1, there is a buzz surrounding the feasibility of a universal basic income (UBI) in the Indian context. Simply put, a UBI is a sum of money provided by the State to all citizens to take care of the bare necessities of life. This measure is intended to provide a safety net preventing any citizen from sinking below a basic minimum standard of living. This idea has gained sufficient traction to reportedly feature in the Economic Survey that is released before the budget.
Main intentions behind the idea of UBI:
In the West, the UBI is being discussed as a solution to two problems: unemployment due to automation; and growing social unrest caused by extreme inequality and precarity. It is expected to solve the unemployment problem by decoupling subsistence from jobs, freeing human beings to realise their true potential, preferably through entrepreneurship. It would address the second by supplying monetary resources to access the necessities of life. This, in a nutshell, is the popular understanding of the UBI.
Is the idea new to India?
Back in 2008, Arvind Subramanian, the present Chief Economic Adviser of the government, along with economists Devesh Kapur and Partha Mukhopadhyay, had argued that the ₹1,80,000 crore spent annually on centrally sponsored schemes and assorted subsidies should instead be distributed as cash directly to 70 million households below the poverty line. Put simply, the UBI in India is nothing but the old wine of direct cash transfer in a fancy new bottle.
Its objective remains the same: to eliminate the public distribution system (PDS) and with it, the food, fuel, and fertiliser subsidies. The same old arguments for replacing the PDS with cash transfers are now being trotted out in favour of the UBI. The addition of the word ‘universal’ signals greater ambition but alters neither the substance nor the motive.
However, the idea is not free from concerns. Main concerns include:
- The most eloquent advocates of UBI today are free-market enthusiasts and capitalists. They are mainly happy because the additional resources for UBI is not being generated by taxing wealthy. This forces the government to cut its welfare spending.
- In Finland, UBI is given only to the unemployed. It does not cover all working individuals. And it only replaces the already existing basic unemployment allowance and labour market subsidy — it is not an add-on benefit. In India, too, the UBI is not an add-on. On the contrary, it is about giving in a different form (cash), and under one umbrella, what is already being given (in-kind and cash benefits) via different channels.
- What constitutes a basic income? Amount that is required to take care of basic life needs. While different numbers have been bandied about, there seems to be a broad consensus around the Tendulkar committee poverty line of ₹33 a day. This works out to a basic income of ₹1,000-₹1,250 a month or ₹12,000-₹15,000 a year. But even this modest figure is estimated to cost 11-12% of the GDP. In contrast, all the government’s subsidies put together account for only 4-4.5% of the GDP. This place huge fiscal burden on the government.
What makes India ready for a UBI now?
The Jan-Dhan Yojana set out to make every Indian accessible to global finance. The Aadhaar card set out to make every Indian identifiable and enumerable as data — the currency of global tech. The high mobile penetration has connected every Indian to the global digital network. An element that was missing was consumer behaviour, which the recent demonetisation sought to address, by force-feeding ‘cashless’ to a cash-dependent population. The UBI fits perfectly in this scheme of things, as it seeks to compress the whole gamut of welfare benefits into one, and mount it on a singular JAM (Jan-Dhan, Aadhaar, Mobile) platform.
Why India may not be ready for a UBI yet?
It is assumed that the amount of money being spent on various kinds of subsidies today is justified, and the only issue is of targeting, which can be addressed by the transfer of basic income to every citizen. This is not correct. The widely quoted 2003 National Institute of Public Finance and Policy study showed that both Centre and state government subsidies amount to about 14% of GDP. The idea should be to reduce expenditure on non-merit subsidies and use the savings to boost capital spending that India badly needs. Differently put, just because the government has been misallocating resources over the years is no reason why it should continue to do so—this time more efficiently.
Also, it is said that reduction in revenue forgone can augment resources for UBI. Again, this may not happen. The revenue forgone is basically a reflection of problems in our tax administration which need urgent reforms. For instance, India has one of the highest rates for corporate tax among its peers.
But why a UBI now?
There are mainly two reasons for this, according to experts:
- One explanation could be the immense pressure on India in secretive free trade negotiations. The developed nations have for long wanted India to wind up its food security-related provisions — both state procurement of foodgrains, and their subsidised distribution via PDS. A UBI would pave the way for the elimination of these measures, dealing a death blow to food security and deepening farm distress.
- Another is that the Indian state is stuck with welfare commitments it cannot renege on without political and legal consequences. The efficiency/inefficiency argument for scraping PDS and MGNREGS never acknowledges that these are rights-based social entitlements with specified outcomes — and that is not accidental. Shifting the welfare paradigm to UBI would loosen the bonds of legal and social accountability. Under the PDS, for instance, the state must provide a specified quantity of foodgrains to the poor no matter what. With UBI, it has the option letting the payout slide behind inflation.
India may not be ready yet to welcome the idea of a UBI. India needs to invest resources in building productive capacity in the economy rather than doling out cash to the entire population. Further, the government needs to be careful about unintended consequences. For instance, what will be the impact of UBI combined with programmes like the Mahatma Gandhi National Rural Employment Guarantee Act on the labour market? It is unlikely to help India’s case as a low-cost manufacturing destination.
Instead, the government should focus on increasing the use of conditional cash transfers with better targeting, which will not only help the poor but will also plug leakages. Progressively, the state would do well to rebalance its spending in favour of augmenting productivity and economic growth which will lift people out of poverty more decisively.
If the UBI is only about reducing inequality and poverty, then there are many things the state could do at a fraction of what the UBI would cost — from enforcing the minimum wage law, to releasing funds on time for MGNREGS. But if a dispensation hostile to these tried and tested anti-poverty measures develops a sudden zeal to eliminate poverty through UBI, a measure of scepticism is in order.
One size does not fit all. We should be open to the possibility that different policies could work well in different contexts.