UBI in India
This is a guest blog by Brajesh.
In India 21.9% of the population is below the poverty line (BPL). 60% of the wealth is held by 1% of the population, making India as one of the most inequitable in wealth distribution among countries. The ineffectiveness of the existing government schemes for the poor and the implementation gaps have led the government to think of improving the situation. This has led the current chief economic advisor to the finance ministry, Arvind Subramanian to propose the concept of Universal Basic Income (UBI). The idea is not new. Finland has started the program on a trial basis and the Swiss rejected a proposal to guarantee every adult citizen and long-term resident 2,500 Swiss francs (around Rs1.7 lakh) per month. The developed nations like USA have started considering UBI because of the job losses owing to automation and computerization. In this blog the need for UBI, the merits and demerits have been discussed.
Need for UBI
The facts stated about BPL population and income distribution show failure of the past and existing policies. The current situation is not conducive to desired progress as the BPL population cannot consume goods and services required for progress and lacks education and healthcare to come out of poverty. Growth and progress need to be inclusive. Thus the idea of UBI needs deliberation.
Merits of UBI
- UBI will prove most effective in reducing wealth distribution disparity and poverty reduction.
- UBI will improve the state of education and healthcare as public education and healthcare have proved ineffective.
- UBI should replace all/most existing welfare schemes which are highly corrupt and ineffective.
- Since funds will be transferred directly to the accounts of the people and hence the policy is least prone to corruption.
- It will enhance the purchasing power of the poor and the consumption would contribute to GDP.
- Minimum income security would enable individuals to plan their lives better and undertake more meaningful activities rather than be trapped in distress-driven activities in search of subsistence. This may also lead to reduction in migration due to distress.
Demerits of UBI
- When a person is given money for doing no work he loses the incentive to work. A large amount of population may lose incentive to work.
- UBI may cause an increase in labour cost and thus India may lose the advantage of low cost of production and initiatives like “Make in India”, which are yet to take off may fail.
- The cumulative impact of above points may lower the GDP.
- The scheme will also not be free of corruption.
Feasibility of UBI?
Do We Have the Money? Let’s say, the government decides to give basic income equal to the current poverty line, which is Rs. 1090/- per month, according to the Tendulkar committee. The total cost of providing this income to all Indians would amount to around 12.5% of GDP, which is nearly equal to the size of the Union Government’s budget and way above the 4.2% of GDP that the government currently spends on explicit subsidies under the Public Distribution System, fertilizers, railways, electricity, sugar, LPG, kerosene and water. Thus, such a UBI which provides poverty line-equivalent income to all Indians does not appear to be feasible because of paucity of funds.
Should We Terminate All Existing Welfare Schemes? Another challenge would be phasing out of food related subsidies. Any step in this regard will have an impact on the food security of the country. Subsidies under PDS benefit the poor most and have been more effective than any other subsidy scheme. So, it will be very difficult to decide whether UBI should substitute all existing subsidies or whether it should complement the existing ones.
Will States Agree to UBI? The other big challenge relates to co-ordination between state and central governments. Any plan to phase out subsidies will require an extraordinary degree of co-operation between the states and the Centre.
Is the Required Financial Infrastructure in Place? The financial infrastructure is still inadequate to meet such a scheme. Most of the population in the rural areas still does not have a bank account. This means that the transfer of basic income directly to every individual cannot be achieved. Therefore, scaling up of the banking infrastructure is required before such a scheme can be effectively executed.
UBI is definitely a great idea worth deliberating. As of now we are clear that the paucity of funds precludes its implementation. There are several answers which need to be obtained before we can think of operationalizing the idea.