Is India ready for a universal basic income?
Unlike farm loan waivers, universal basic income does not impair credit culture and, unlike farmer-specific transfers, does not seek to tie down people to farming
New Delhi: The idea of a universal basic income has gained currency in the West because of the threat of automation-induced job losses. In India, the idea first gained currency as a solution to chronic poverty and government’s failure to effectively target subsidies towards the poor.
Amid persistent farm distress and weak wage growth across occupations, the idea of an income support scheme seems to be gaining ground once again. Some advocate an income support scheme for farmers while others advocate a broader income support for all .
Still others, such as the former chief economic adviser Arvind Subramanian favour an income support scheme targeted towards the poor, that is, a non-universal basic income.
The idea of an income support scheme for farmers draws from the Rythu Bandhu scheme initiated by he Telangana government which may have helped the Telangana Rashtra Samithi (TRS) government storm back to power. Unlike farm loan waivers or minimum support prices for specific crops, a Rythu Bandhu-type income support scheme does not damage credit culture or distort markets. However, the Rythu Bandhu scheme excludes tenant croppers who consist of around 13.7% of farm holdings all across India.
Under Rythu Bandhu, the government provides ₹4,000 per acre per season to support farm investment and it is up to the landlord to pass on the benefit to the tenants. Even in its current form, extending the scheme across India will cost a prohibitively high amount of ₹3.1 trillion in one year alone. Viewed over the period of five years—the term of one government in India—a Rythu Bandhu-type scheme would cost much more than the farm loan waivers recently announced across states. Moreover, such a farmer-specific scheme might encourage people to remain tied to agriculture, a relatively less productive sector of the economy.
Compared to a farmer-centric scheme, universal basic income holds greater appeal as it does not discriminate based on occupation or land ownership, and does not depend on accuracy of targeting to work. But the challenge with universal basic income is the prohibitive costs associated with it. Providing all individuals with a poverty line-equivalent universal basic income (₹1,180 per month for each individual, in 2017-18 prices) would cost around ₹19 trillion or 11.4% of gross domestic product (GDP). This would be 50% more than centre’s total tax revenues, and would certainly not be sustainable.
However, even much lower levels of universal basic income might suffice in improving the lives of the poor. For instance, a 2011 study by United Nations International Children’s Emergency Fund (UNICEF) and the Self Employed Women’s Association (Sewa) in rural Madhya Pradesh showed that providing ₹300 per month to each adult and ₹150 to each child can make a big difference to the lives of the poor. In 2017-18 prices, it amounts to around ₹18,000 per year for a family of five: two adults and three children.
A similar amount, ₹16,000 per year to a household of five, has been suggested by the renowned development economist Pranab Bardhan. Such a universal basic income support (universal basic income) would cost around ₹4.3 trillion or 2.6% of GDP.
Even such a scheme is feasible only if the centre trims current subsidy and welfare expenditure. Some of these schemes including the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are often deemed to be leaky and poorly targeted although opinion among economists is divided on this issue. Some think that these schemes are beyond redemption and should be replaced by a guaranteed income while others consider schemes such as MGNREGA to be better alternatives to universal basic income, if only targeting could be improved.
The various schemes of the central government, which can potentially make way for a universal basic incomes together amount to around 3% of GDP, including food subsidy under the public distribution system (0.84% of GDP), MGNREGS (0.33% of GDP), fertilizer subsidy (0.4% of GDP), petroleum subsidy (0.15%), and miscellaneous subsidies and revenue foregone due to tax exemptions. Given that the withdrawal of state support across so many sectors could be highly disruptive, some economists advocate a partial and gradual withdrawal.
The development economist Reetika Khera has suggested that the move towards universal basic income should start with a ‘universal’ pension of ₹1,000 per month to the easily identifiable groups of elderly, widowed, and disabled . Additionally, the government should ensure maternity entitlements of ₹6,000 per child. Such a scheme would cost a relatively manageable 1.3% of GDP.
It is little wonder that in a quasi-federal democracy such as ours, state governments have taken the lead in starting different varieties of income support schemes. However, it is worth keeping in mind that several state governments do not have the fiscal space to launch even a watered-down version of a basic income support scheme.
What form an income support scheme eventually takes will ultimately depend as much on economic motivations as on political ones. But regardless of the form it takes, the idea of an income support scheme or direct cash transfers is here to stay for some time. Two of India’s former chief economic advisers—Kaushik Basu and Arvind Subramanian—can take some credit for that.
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