How feasible is universal basic income?

The idea of Universal Basic Income (UBI) was discussed at length in the Economic Survey of 2016-17 but the debate over it is only now heating up with the general elections approaching.

Looking at its cost and logistics challenges, most economists believe the government should look at a targeted basic income rather than a universal basic income.

They also said in whatever form it is taken, it should be done through rationalisation of existing ineffective state and central social security and anti-poverty programmes.

Martin Wolf, associate editor, chief economic commentator of Financial Times, told DNA Money over the phone from UK the government should launch the UBI from the budget currently being used for work and food programmes. 

“India’s current systems of support for poor people are enormously insufficient and there is a tremendous amount of wastage too. So, it is possible that if you took the budget that are now being used for work programme and food programmes then you could make quite a big step towards UBI,” he said.

For the uninitiated, UBI is a radical solution, which could provide a right to basic income to everyone. Generally, it consists of three elements. The first is universality; that is UBI for all. Second is unconditionally, meaning basic income without any conditions. Third is agency, which means it can make a citizen move away from being a subject of government welfare programme to agents of its own change.

According to Wolf, UBI will involve a lot “churn” of income as the government will have to raise the money for the people, from the people and return it back to them. 

“The problem is if you have a generous UBI then it becomes rather expensive. You have to raise a lot of tax. You could always have a very low UBI but if you have a very low UBI then it doesn’t help alleviate poverty in an effective way. If you are going to give income to everyone, whether he is poor or not, and you want to alleviate poverty, then you have to raise quite a lot of tax. If you don’t want to raise tax, then you end up giving very small amounts of money to everybody then it wouldn’t alleviate poverty. Obviously, there is a fundamental trade-off in all UBI schemes because by their very nature they have administrative benefit. They are simple and everybody gets the same amount,” he argued.

The FT economist believes if UBI had to be effective in alleviating poverty, the government will have to look at some ways to improve the tax collection rate.

“This will clearly require raising more taxes. It does seem to me that raising more tax is possible, but that would be quite a big political move,” he said. 

Ranen Banerjee, partner, public finance, economics and urban, PwC India, told DNA Money any basic income programme proposed by the government should be targeted as they will not be able to afford a UBI scheme; “the issue is whether we can afford it. If the multiple schemes that are currently running are rationalised, and savings from them are diverted to a targeted basic income scheme then there could be a possibility that we can begin at a certain level or with a certain category of people”.

For this, Banerjee said the government would need extensive preparation.

“If you look at the Telangana scheme (Rythu Bandhu policy), there was a long effort of almost two years of getting everybody listed and enrolled. A lot of ground work happened for it. The government may be able to announce a scheme but they will need a lot of preparation to implement it,” said the PwC economist.

Currently, Jharkhand has Mukhya Mantri Krishi Yojana while Odisha has KALIA. There is political pressure on the government to come out with basic income schemes for farmers before the general elections. Nishikant Dubey, a BJP MLA, has called for transferring cash amount of Rs 3,000 per month into the bank accounts of around 10 crore poor families.

Arvind Subramanian, former chief economic advisor (CEA) to the government, had proposed a Quasi Universal Basic Income (QUBI).

The chapter 9 of the Economic Survey authored by him in 2016, examined UBI as a tool to improve upon the current anti-poverty and social programmes. It studied illustrative costs for a UBI and outlined ideas to take it forward.

Subramanian’s economic survey gave an estimate of minimum Rs 7,620 per year for 2016-17 based on the poverty, consumption, income and inflation levels. This worked out to about 4.9% of GDP. It said that the UBI could be indexed to inflation for revisions and a neutral political mechanism could be set up for it.

The time when the Economic Survey are done, the Central subsidies were 2.07% of GDP and state subsidies were 6.9% of GDP. 

As per the Tendulkar report, despite India making remarkable progress in bringing down poverty from about 70% at independence to 22% in 2011-12, there still existed multiple deprivations.

Income security 

• Rs 7,620 per year – Economic survey in 2016-17 has estimated universal income based on the poverty, consumption, income and inflation levels. 
• 4.9% of GDP-- such a universal basic income scheme it would form 
• Rs 3,000 per month-- A BJP MLA has proposed putting in bank accounts of 10 crore poor families