BUSINESS

Here's The Behind-The-Scenes Thinking About A Universal Basic Income For Every Indian Citizen

The annual UBI figure supported by leading economists range from Rs3,500 to Rs10,000.

10/01/2017 5:22 PM IST | Updated 11/01/2017 9:45 AM IST
Parivartan Sharma / Reuters

The idea is simple and elegant, and easy to sell to people of various political shades. Every citizen of India gets a small amount of money transferred into his or her bank account every month. For those who believe in a role for the government in welfare, this means a safety net for the poor, and a more elastic one than the current welfare state, bound as it is by a problematic poverty line. For those supportive of a welfare state but critical of a 'nanny' state, cash allows citizens to use the money as they like. For those who would like to see the state play less of a role, the collateral benefit is the winding up of a state welfare machinery that they see as hulking and a paring down of subsidies that they see as leaky and wasteful.

India is inching towards a trial run of a Universal Basic Income, conversations with dozens of bureaucrats and economists over the last two weeks have indicated. With Finland the only country in the world running a UBI after Switzerland voted against it in a referendum last year, UBI supporters across the world have trained their sights on India, buoyed by what they see as the success of small pilot programmes, a consensus being built among economists especially those well-connected to the administration, and positive signals from politicians and officials at the top. Chief Economic Advisor Arvind Subramanian has already indicated that there is likely to be a chapter in the upcoming Economic Survey on a UBI.

Anindito Mukherjee / Reuters
Chief economic adviser Arvind Subramanian has indicated that there will be a chapter on UBI in his Economic Survey.

The idea of a universal basic income has been discussed in Europe since the 1980s. Over the last five years, discussion and support in the economist community have built in India. The British labour economist Guy Standing and the Indian development economist Renana Jhabvala who is also national coordinator of the Self Employed Women's Association. Standing and Jhabvala led small pilot programmes testing out a universal basic income in India. Dozens of other leading economists have written in support. In principle, a range of economists from the left to the right support a UBI but some of the world's top economic minds now disagree sharply on what a UBI in India should look like and how to pay for it.

Standing proposes an inflation-indexed UBI of Rs 6,000 per person per year which, he says, would cost 8% of GDP. Pranab Bardhan, Professor of Economics at the University of California, Berkeley, proposes Rs 10,000 per person per year at 10% of GDP. Vijay Joshi, Emeritus Fellow of Merton College at the University of Oxford, proposes a far lower Rs 3,500 per person per year which he says would cost 3.5% of GDP.

Where will the money come from?

Most supporters of a UBI propose to pay for it by phasing out subsidies and scaling back current anti-poverty schemes. But there is little agreement on how much money this actually adds up to. The key source for data on subsidies--particularly on "non-merit" subsidies which include fuel and fertiliser subsidies as well as subsidised water, electricity and rail fares--is a 2003 study by the National Institute of Public Finance and Policy. That study estimated that subsidies amount to 14% of GDP and the fiscal savings from the elimination non-merit subsidies would free up 8-9% of GDP.

But not only are the NIPFP numbers now 14 years out of date, major changes in the form and structure of both subsidies and anti-poverty schemes have taken place in the last ten years. The NIPFP is in the process of revising its estimates; it is likely to say that total subsidies now amount to 11% of GDP, of which non-merit subsidies now make up only one-third or about 3.3% of GDP, sources privy to the discussions said. This is significantly less than what was earlier assumed and is likely to change the tenor of discussions, given that not all of this money would automatically be available for a UBI.

Anindito Mukherjee / Reuters
Finance minister Arun Jaitley will present the budget on 1 February.

Supporters of the UBI propose further avenues for the government to find money: revenues foregone through tax holidays for corporates and exemptions for certain goods amount to another 6% of GDP of which, says Bardhan, say half could be made available for a UBI. Anti-poverty schemes, says Joshi, amount to 2.5% of GDP and part of these could be done away with as they are leaky and ineffective. Standing also proposes doing away with the Public Distribution Scheme and the Mahatma Gandhi National Rural Employment Guarantee Scheme. "A third approach would be to establish sovereign wealth funds, based on levying special taxes on use of minerals and natural resources, and putting part of the income saved by phasing out those subsidies into them," he says.

These are expenditure-side proposals. On the receipts side, the Pune-based think-tank Arthakranti has proposed a Banking Transactions Tax to allow the state to do away with income tax and other direct taxes as well as bring in between Rs 22-24 lakh crore, which would free up additional fiscal space. However, despite being popular with the online right, the proposal has few takers among serious economists, including those close to the establishment. "I don't think a banking transaction tax is a good idea; it is neither easily implementable given the banking infrastructure limitations at the moment, nor is it desirable," says economist Ajit Ranade. "India has a high savings rate but a relatively low proportion of these savings are within the formal banking system; at a time when we need to bring more of people's money into the banking sector, a tax on bank transactions would be a particularly bad idea," he says.

There are questions over many of these proposals; winding up tax holidays is seen as a business-unfriendly decision. Then, existing subsidies and anti-poverty schemes face leakage problems, but one of the leading sources of error is targeting--a 2011 World Bank study found that universal schemes and schemes run in states that have expanded coverage run with fewer problems, the same thinking that has made UBI supporters push for it to be universal. It isn't clear from pilot programmes conducted so far that unconditional cash transfers would be better for improving nutrition or health outcomes than expanding existing government schemes. What is clear from conversations with officials and economists is that if a UBI comes in, it will be in place of some existing schemes. How best to spend limited government resources is a matter of debate.

"UBI is an appealing idea, but for India today it strikes me as a case of premature articulation. There are much better things to do for now with the limited resources available," says the renowned development economist Jean Dreze. Instead of launching into a UBI right away, the economist Reetika Khera has proposed, the government could universalise pensions and maternity entitlements initially. Instead of a small universal transfer, the government could give a higher amount to targeted groups like only pregnant women for starters, says economist Ajit Ranade. "We could also think of a focus on four or five predefined health conditions that often push people just over the poverty line into destitution, to be provided full insurance coverage as part of UBI," he adds.

And then there is selling the idea politically. Despite public disgust with corruption and leakage in government schemes, removing large anti-poverty schemes and subsidies will be viewed negatively by the public and will be a shock to the system, officials who have liaised between some economists and the administration, said. The Prime Minister's effective political messaging could be used to propose a reduction in some non-merit subsidies and float the idea of a universal cash transfer which could be returned by the rich, the officials said. "The idea of sacrifice by the rich along with benefits for the poor is something the PM can sell," one official said.

More On This Topic

SPONSORED BY THE LIVE, LOVE, LAUGH FOUNDATION