Universal basic income for India

It will enhance bargaining power against traders, middlemen, contractors, creditors and landlords

Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

The idea of an unconditional universal basic income (UBI) for everybody, rich or poor, has been around for quite some time in the West. But until recently this has not been discussed much in India. More than five years back, in an Economic And Political Weekly article (5 March 2011) I had suggested this for India, funded by a part of the regressive subsidies that now go to the better-off. In an interview with Mint in 2014, I again referred to the idea. Renana Jhabvala of the Self-Employed Women’s Association (SEWA), when she saw that interview, brought to my attention her co-authored 2015 book on basic income for India. More recently, Vijay Joshi, in his 2016 book, has adopted the idea of UBI funded by regressive subsidies.

In my mind, the main pragmatic justification for UBI is that in many current programmes targeting the poor, through a process of political and administrative collusion and connivance, benefits continue to leak to non-targeted, better-off people, while many of the intended beneficiaries are left out.

For example, the India Human Development Survey of 2011-12 shows that about half of the Indian poor do not have the BPL (below poverty line) card and about one-third of the non-poor have it. In a country where the large majority of workers are in the informal sector—often self-employed, without benefits and without formal account-keeping and hence beyond means-testing—and with an administration as corrupt and inept as ours, targeted programmes will remain leaky and inefficient. A UBI can cut through much of this mess, and with Aadhaar and Jan Dhan bank accounts soon to reach the overwhelming majority of people, a phased UBI over the next 10 years is administratively feasible.

What about fiscal feasibility? Some estimates of economists associated with the National Institute of Public Finance and Policy have suggested that the total amount of government (Central plus states) subsidies (explicit plus implicit) that now accrue to the better-off sections (they call it “non-merit subsidies”) come to about 9% of gross domestic product (GDP). These estimates—they are now being updated—do not include any subsidies in the health, education, nutrition, environment, urban and rural development programmes that may be going to the better-off.

On top of the 9% of GDP in the form of regressive subsidies, there is a category of “revenues foregone” in the Central budget (mostly in the form of tax holidays and exemptions), largely for firms or companies. This comes to about 6% of GDP (no one has yet estimated the revenue foregone in the state budgets). There are data and interpretation problems for the tax exemption figures; they also do not include necessary exemptions from customs duty for imports used in processing for re-exports. Yet, if even half of the 6% is added to the earlier 9% for the regressive subsidies, the total comes to about 12% of GDP.

Suppose we decide to fix the UBI at an inflation-indexed Rs10,000 at 2014-15 prices (this is about three-quarters of the official poverty line that year) to be paid to each person per year in India’s then population of 1.25 billion (at the moment, to keep calculations simple, I am ignoring the adult-child difference in needs; besides, once you introduce this difference, an official gets to have power over eligibility of families to the total amounts, as many do not have birth certificates to indicate age). This comes to about 10% of the Indian GDP that year.

So a UBI of Rs10,000, funded by regressive subsidies and a fraction of revenue foregone in the Central budget, and with no fresh taxes, is fiscally not impossible to manage. To the extent that not all the subsidies to the better-off can be cut, one will, of course, need some more taxes to fund UBI—for example, by carrying out some simple reforms to the administrative process of the absurdly low-value assessments and property tax collections in India, as the real-estate sector has been booming off and on for many years. UBI should be administered by the Central government (with the finance commission making appropriate adjustments to the fiscal transfers to the states, if part of the funding of UBI is to come from state subsidies).

UBI funding could also come partly from replacing some egregiously dysfunctional current welfare policies. But I am not emphasizing this too much here, as it should in no way be thought of as a substitute for some other, in my judgement, crucial current welfare policies—like public education and healthcare or pre-school child nutrition programmes or the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)—even though their administration leaves much scope for improvement.

A common argument against UBI is that it will lead to work disincentives (as you get this income without any work). I think any feasible UBI for India in the foreseeable future will be so small that it will not significantly replace work. If anything, the poor are often overworked in back-breaking, oppressive work, and it will be better if they, particularly women, can work a little less. It can also be a great relief for the stark livelihood uncertainties faced daily by the vast numbers of the self-employed and the marginalized casual and migrant workers, and will help them in seeking better jobs. It will also enhance their bargaining power against the traders, middlemen, contractors, creditors and landlords they encounter. For women, it can boost their autonomy within the household, and for the self-employed poor like small producers and vendors, it can relieve a part of their credit constraint. For the socially stigmatized workers in India, like scavengers and waste-carriers, UBI can provide an escape ladder, and induce society to mechanize, as much as possible, such unwanted, filthy jobs.

Another common argument against UBI is that the poor (particularly the men in the household) will blow it up in alcohol and drugs and gambling. One can, of course, try to deposit the UBI for the household in the adult woman’s bank account. But more importantly, there is actually not much evidence of misuse of such grants in the accumulating experimental data. There are now many experiments in different parts of the world on the use of unconditional cash grants, which show that most of the money is found to be spent on worthwhile goods and services (keeping in mind the few able-bodied but feckless people who may misuse the grant, the MGNREGA is retained in our list of welfare policies as a fallback option).

Finally, how politically feasible is this proposal of UBI for India? I think it is, of course, a long shot but worth trying. I have seen many people who otherwise like the idea throw up their hands and say that the better-off in India will never give up the subsidies they enjoy (which incidentally come to several times our total anti-poverty budgets). My position is that instead of resigning ourselves to the massive dole we give every year to the rich, we should think in terms of mobilizing public opinion and activate social movements regarding a measure like UBI, which otherwise some people both on the left and the right find acceptable. The way to start in that political mobilization process is first to convince all the informal workers’ associations and welfare boards in India about the feasibility and desirability of basic income, as they will be the largest beneficiaries. Then these associations—maybe SEWA, which already supports the UBI idea, can take the leadership in this—should negotiate with the organized-sector worker unions about how basic income is really an extension of the idea of pension, but for everybody.

What do the trade unions gain from this negotiation? One, they get a much larger body of workers to be associated in their demands and bargains. UBI can be a common bridge between the unionized and the vastly larger number of other workers, a divide which for many years has weakened the labour movement. Second, today one-third to 40% of workers in the organized sector are contract labourers deprived of most benefits. Unions have been demanding benefits for the latter for some time; their struggle will be strengthened if it now becomes part of a much larger movement.

Even if the workers, both formal and informal, get united on this, the strength of the opposition from business, rich farmers and the salaried class should not be underestimated, as in our scheme the latter groups will have to give up some of the subsidies they currently enjoy. Will rich farmers, for example, give up the subsidies for fertilizer, water and electricity in exchange for each family (say, of five people) getting Rs50,000 as basic income? At least they may now have some difficulties in mobilizing small farmers for their cause (one reason I have kept the figure of UBI at a relatively high figure—larger than that proposed, for example, by either Joshi or Jhabvala and co-authors—is that a higher figure may encourage small farmers and other such people to rally behind UBI instead of the trickle-down subsidies they currently get that are mainly lapped up by the richer people).

No doubt the whole process will involve tough negotiations and give-and-take all through. At least one argument the rich usually give against welfare schemes for the poor, that much of it is stolen or wasted, will apply much less in the case of UBI. One should have no illusion about the difficulties in the political-economy process for implementing UBI. But one thing going in its favour is that it attracts support from people in different parts of the political spectrum, which may someday generate a winning coalition.

Published with permission from Ideas For India (www.ideasforindia.in), an economics and policy portal.

Pranab Bardhan is professor of economics at the University of California, Berkeley.

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