UBI: many questions unanswered

The idea behind UBI is simple: a regular state payment to all citizens, regardless of working status.

The Economic Survey placed ahead of the Union Budget had talked about rolling out a Universal Basic Income (UBI).That is a radical idea for tackling poverty. It said the scheme would nearly wipe out poverty although there are “considerable implementation challenges.

” It called for more pilot trials before rolling out UBI nationally. The idea behind UBI, which is generating interest in countries like USA and France, is simple: a regular state payment to all citizens, regardless of working status.

According to Chief Economic Adviser Arvind Subramanian, the UBI would promote social justice and empower the country's poor. He estimates that the scheme would reduce nationwide poverty to 0.5% and cost between 4-5% of GDP. While that might sound expensive, the Survey noted that India’s current welfare schemes like subsidies for food, fuel, and fertiliser, cost around 5% of annual GDP.

Another argument is that UBI would be easier to implement than the current anti-poverty programmes, which are riddled with corruption.

In a country of over 1.2 billion people, the task of identifying who is and isn't in need of financial assistance is certainly messy and improvident. Yet, experts argue that something like a UBI could theoretically solve this problem. With the implementation of DBT (direct benefit transfer) and circumventing multiple layers of bureaucracy, the scope of financial “leakage” will be lower as we have seen in the case of LPG subsidy.

One strong argument in fav­our of UBI is that it is widespread in nature. The other argument is it doesn’t end the responsibility of the government. While many support UBI, there is some nagging doubts still, particularly its implementation. Some economists opine that ins­tead of UBI, the MNREGA sho­uld be strengthened and the deli­very system be made more foolproof.

Besides being a universal employment guarantee scheme, MNREGA has the ability to filter out the needy from the privileged. Also, it automatically excludes those who can’t accomplish heavy manual work. In that sense, UBI has to side with MNREGA. Experts agree that UBI can’t be implemented in isolation and it has to fall back on the existing poverty-alleviation n schemes.

As for investment, it is estimated that to implement UBI the government has to spend 10% of the GDP. Where from this money will come? Moreover, the proposed UBI is using old data: numbers that were assembled some 20 years ago when non-merit subsidy (subsidy that benefitted individuals without any social impact) was 10% of the GDP. Those times are already gone.

To fund UBI, some economists propose a cut in 'revenue forgone' (renamed 'revenue impact of tax incentives') which is a staggering Rs 6.11 lakh crore. In 2015-16, the Centre lost this potential tax revenue due to various exemptions, concessions, rebates etc, given to sections of taxpayers excluding export promotion-related concessions amounting to an additional Rs 50,938 crore.

Similarly, direct tax concessions worth Rs 68,711 crore were given to corporate bodies last fiscal. But the question is: why will the industry give up this concession? Another niggling question is, even if 5-10% of GDP is available to fund UBI, why shouldn’t it be invested in sectors like healthcare where the investments are abysmally low.

Subsidy programmes

To make UBI more focused and in order to make a start, some economists have proposed to bring the two important subsidy programmes under its ambit: pension presently given to widows, disabled and the old. Some 2.5 crore people have been benefited by this scheme who get between Rs 200 and Rs 1,400 per month. The other subsidy programme is the proposed Rs 6,000 incentive to be given to every new born under the National Food Security Act.

To the extent that working women in organised sectors avail four months maternity leave with pay, those who are in the unorganised sector getting Rs 6,000 inducement for the new born and the post-natal mother care is defensible. These two subsidy schemes are very much under UBI excepting that they are for the targeted few.

Another advantage of UBI is that the numbers can be easily arrived at for all the four categories — old, widow, disabled, post-natal mother. Also, they belong to the poor and the deprived segment. In terms of volumes, the total outgo will be around Rs 1.56 lakh crores per annum which is a mere 1.5% of the GDP.

As far as implementation goes, these subsidies can go to the right people and the success can be seen visibly. All the incen­tives will go through the bank and there are lesser chances of pilferage. By universalising the old-widow-disabled pension, there won’t be additional burden on the exchequer and, so, the universal basic income concept can be a happy augury.

In the Budget for 2017-18, Finance Minister Arun Jaitley has been down to business to provide job- growth and reassuring the Modi government’s development agenda. Half the way through the NDA government’s term, jobs and growth have not been visible and demonetisation has given a big blow to work and earning. Surely, UBI can a comforting balm if implemented with sincerity.