Half-baked UBI will not work

As per Nobel Laureate Joseph E Stiglitz, “a rising tide lifts all boats.” But, “sometimes, a quickly rising tide, especially when accompanied by a storm, dashes weaker boats against the shore, smashing them to smithereens.” 
Historically-backed evidence shows that trickle-down economics has failed to deliver its claim of uplifting the poor. 

Instead, as economies have seen accelerated growth rates, the bottom percentile has experienced a decline in its real incomes commensurate with rising inequalities. 

This has led to the need for governments to rethink the way a modern welfare state functions, while keeping in mind fiscal constraints. 

For a country like India, with limited resource capacity and a burgeoning population, the welfare state needs to be well functioning. In its truest sense, a welfare state is said to be well-functioning only if the actual benefits reach the targeted beneficiaries of interventionist economic policy.

One robust mechanism is by providing an assured income support scheme like the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN). The scheme is an attempt to adopt a targeted beneficiary-based approach to enable equitable socio-economic development of rural households. Such an approach to development may be compared to the operation of an elevator in a high-rise building. On the first trip, the elevator takes some passengers to the top, given its finite carrying capacity. Then it comes back down to pick more people up. 

Just like an elevator, an income support scheme can empower only a certain group (in this case, small and marginal farmers) at a time, by taking them up to a higher level of income and improved standard of living. 

With time, it can be gradually expanded to encompass other vulnerable groups and the elevator can pick these people and take them up as well. With its 1.3 billion population, socio-economic inequalities and vulnerabilities, the Indian policy making, perhaps fits this analogy quite aptly. 

For uplifting the poor, various concepts like quasi universal UBI and assured income support have been doing the rounds. But a lot of mayhem surrounds the very concept of Universal Basic Income (UBI). 

These half-baked policy recommendations have the potential to result in a ‘jack of all trades’ situation, if implemented without extensive deliberation.

Certain fundamental questions need to be addressed first. To begin with, we must now consider what really is universal basic income? The Economic Survey 2016-17 defines it as a guaranteed basic income provided to all citizens without any conditions in order to provide them with agency in decision making. 

Essentially, it must be universal i.e. for all citizens, unconditional i.e. provided without any conditions and ensure agency by providing the freedom of choice regarding how the money is spent. 

The second question pertains to the financing of the UBI. One must realise that India has an unwavering commitment to maintaining fiscal discipline. The increase in subsidies burden is adding to the serious strain on the fiscal bill. This means that at present, there is limited fiscal space for the introduction of UBI. 

Then what are the potential ways to finance the UBI? One suggestion puts forth the idea of withdrawing all or certain welfare schemes to implement the scheme.

Another recommendation proposes that fertiliser and urea subsidies for farmers in the Kisan Fasal Bima Yojana, be withdrawn. The funds thus freed, could be used to fund a UBI exclusively for farmers. 

But it is a well-established fact that welfare schemes and UBI are not perfect substitutes for each other. The latter does not help overcome challenges of access and availability, thus pertaining additional transaction and transition costs. 

That being said, no government, no matter how popular, would withdraw any welfare scheme to create the requisite fiscal space for UBI. In fact, in the history of India, almost no welfare scheme has ever been withdrawn- only tweaked, modified or had its name changed. 

Now that the meaning of UBI and what it means is clear and the problem of limited funds and its implications have been established- we come to the next question. Why is India really looking to implement the UBI? Is it to provide income support to small and marginal farmers or is it an unemployment guarantee or is it simply a measure to alleviate the poor? 

Given the fiscal constraints, a scheme that is both ‘universal’ and provides a ‘basic income’ is not economically feasible. 

With regard to the universality element, providing a basic income to all citizens would lead to skyrocketing of India’s fiscal budget or the basic income would be more on lines of a paltry income supplement to all. 

Compromising with the ‘basic income’ tenet of UBI would make it a hollow policy benefitting no one at all. 

Given that the Indian farmers experience serious challenges due to their reliance on the vagaries of nature, unpredictable rainfall and sharp fluctuations in farm market economics- they form a major sect of India’s vulnerable population. 

A good starting point has been the NDA government’s announcement of the PM-KISAN scheme in the Interim Budget 2019-20. 

This would cover all small and marginal land-holding farmers with up to 2 hectares of land aiming to provide assured income support of Rs 6,000 per annum. 

As per the recently released 10th Agriculture Census 2015-16, small and marginal land-holders account for 86.2 per cent of the farmers in India. 

This assured basic income would supplement their agrarian incomes, shielding them against distress and insuring the agricultural sector as a whole.

This guaranteed income scheme coupled with existing agricultural schemes like the PM Fasal Bima Yojana, Krishi Sinchaay Yojana, E-NAM and others, would promote agricultural production, productivity and provide protection against catastrophic shocks.

The PM-KISAN may be seen as the metaphorical elevator taking the farmers to the top, protecting them against income shocks and making their lives better off.

Author is with the Economic Advisory Council to the Prime Minister. All views expressed are personal