Multiple subsidies out, Universal Basic Income in?

When the Centre revealed earlier this month that it is already implementing a decision to raise the price of cooking gas (LPG) by Rs 4 per cylinder every month to eliminate all the subsidies by March next year, it came as a surprise to many.

All three public sector oil marketing companies — Indian Oil (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) — were authorised to hike the price from June 1 this year. The public was clueless about any such decision until Petroleum Minister Dharmendra Pradhan informed Parliament through a written reply on August 1. It did not set off pandemonium in the House.

But it came as a surprise, because only a year ago, in his 2016 Independence Day speech, Prime Minister Narendra Modi had announced a welfare programme of the Government of India with the stated objective of providing five crore LPG connections to women in below-poverty-line (BPL) families. The scheme, named Pradhan Mantri Ujjwala Yojana (PMUY), was to cover every nook and corner of the country within three years.

Most people, including Members of Parliament, came to know of the decision to raise LPG prices every month only on the next day, through newspapers. Another surprise came when no major political party or leader reacted to the decision, except Kerala Chief Minister Pinarayi Vijayan and Bengal Chief Minister Mamata Banerjee. Vijayan asked the government to withdraw its decision to eliminate the LPG subsidy from March next year as it would burden the common man. Banerjee accused the BJP of making public commitments and then going back on them.

She was probably talking of the commitment made through the PMUY scheme that provides assistance of Rs 1,600 to each woman beneficiary, which includes the security deposit for a 14.2 Kg cylinder and regulator, hose, gas consumer card and installation charges. The refilling of the gas cylinder is to be done by the beneficiaries themselves but they would now get a subsidy for that, the cost of which is partly borne by the government and partly by the oil marketing companies themselves.

The scheme has given a boost to oil companies’ LPG business like never before. They have added new bottling plants to meet the demand. But the BPL households now run a risk of having to abruptly halt the use of clean fuel and going back to biomass fuel. Ending subsidy on LPG cylinders would bring them to market-linked prices, unaffordable for poor households in rural areas. There are over 18 crore customers for subsidised LPG in the country, including 2.5 crore poor women who were given free connections during the last one year under the PMUY.

Phased transition?

Recently, the government has also asked state oil companies to keep raising prices of subsidised kerosene by 25 paise every fortnight until the subsidy is eliminated. Since there is not much hue and cry, the government has also not come out with any answers as to how it is going to help poor people who cannot afford even a subsidised Rs 580 LPG cylinder. That price may even touch Rs 800-900 in winter months when the rates normally rise due to a demand-supply mismatch.

Addressing a small crowd in Agartala, recently, the oil minister merely said that the government had no plan to withdraw subsidy on LPG for poor. The answer was less than convincing and opposite of what he had said in Parliament.

His answer has puzzled experts and officials of oil companies, many of whom are speculating that it could well be a preparation to introducing ‘Universal Basic Income’ (UBI), which the Prime Minister’s Chief Economic Adviser Arvind Subramanian had suggested in his Economic Survey ahead of the Union Budget this year. Although it did not find any mention in the Budget, Finance Minister Arun Jaitley had on many occasions in his post-Budget speeches said he was fully supportive of the UBI idea, although on whether it was politically feasible at this stage, he was not so sure.

It may not be politically feasible at this moment, but the government’s seriousness could be gauged from the fact that recently, at a week-long workshop on the Indian economy, Jaitley chose to explain the concept of UBI once again.

“Should we put money into the bank accounts of the poor as we are doing at the moment, or should we eliminate the entire set of subsidies and, instead, give a ‘universal basic income’ to a defined section below a certain poverty line, which expedites pulling them out of their present state of poverty,” the finance minister had said, indicating that a major churning is going on within the government over the idea.

Universal Basic Income is a type of social security guaranteed to citizens under which some money is directly transferred to their bank accounts. The concept is being debated globally. The Economic Survey 2016-17 had proposed the idea as an alternative to various social welfare schemes.

Finland is currently in the process of experimenting with a UBI trial on a small scale. The Netherlands is set to follow. Canada and Uganda are debating the idea. Iran implemented nation-wide basic income when it removed subsidies for gas in 2011. Brazil and Mexico, too, have a version of UBI.

In India, a section of people disagree with the idea because it seems incredibly expensive to implement it. But insiders say that the government is seriously debating whether UBI would be more expensive than running multiple, leaky subsidy schemes. So, is UBI an idea whose time has come?