UBI needs serious discussion, says Survey

To cost between 4% and 5% of India's GDP

UBI needs serious discussion, says Survey

Calling it the fastest way to reduce poverty, the Economic Survey 2016-17 on Tuesday batted for Universal Basic Income (UBI) as an alternative to all welfare schemes, but said that it may be politically difficult to remove subsidies.

According to the Survey, UBI, which reduces poverty to 0.5%, would cost between 4% and 5% of GDP, assuming that those in the top 25% income bracket do not participate. The existing subsidies for food, fertilizer and fuel cost about 3% of GDP.

“UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion,” Chief Economic Advisor Arvind Subramanian, who has authored the Survey, said.

“There are about 950 central sector and centrally sponsored sub-schemes in India accounting for about 5% of GDP. Even leaving aside their effectiveness, considerable gains could be achieved in terms of bureaucratic costs and time by replacing many of these schemes with a UBI,” the CEA said in the Survey.

He, however, cautioned that given the current status of financial access among the poor, a UBI may put too much stress on the banking system. The CEA, therefore, suggested that the UBI may start as a pilot in urban areas where the banking system is relatively strong.

He said that the UBI reduces leakage because transfers are directed straight to the beneficiaries’ bank accounts. “The scope for diversion is reduced considerably, since discretionary powers of the authorities are eliminated almost wholly,” he said.

On the negative side, he said that the UBI may also promote conspicuous spending on alcholol and tobacco, but these form a smaller share of the overall Budget. Another is that people would simply take the free money and laze around. But the evidence from Madhya Pradesh, where UBI was tried on labour supply in a few villages, did not show that, Subramanian said.
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