BackTime for us to work out a universal basic income
A report on inequality has revived India’s debate over an income transfer as a primary safety net for all except opt-outs. If inequality is to be addressed, we need to rethink redistribution
PremiumIndia’s debate on the need and feasibility of a universal basic income (UBI) as an elementary safety net for all our citizens—except opt-outs—got fresh wind last week after the Economic Advisory Council to the Prime Minister released a report on inequality prepared by the Institute for Competitiveness. While its broad focus is on the nature of inequality and poverty in the country, two suggestions made have caught attention. It advocates fallback job options for urban Indians along the lines of the Mahatma Gandhi National Rural Employment Guarantee Scheme, which assures rural residents 100 days of pay-for-work each year for the asking. More significantly, the report also supports a UBI, an idea that is still seen as somewhat radical in policy circles. Little is known of the government’s receptivity to these proposals, but they should both be on the Centre’s agenda for a good reason. Regardless of divisions in opinion over the reality and angularity of a ‘K-shaped’ recovery from covid, or over poverty levels in the country, inequality demands a bold policy response.
An inflation-led widening of our glaring gaps in the financial well-being of people follows a covid rescue involving a large fiscal-monetary expansion that boosted asset values as a side effect, even as the brunt of the pandemic shock was borne by the asset-poor. Large numbers suffered a severe income squeeze. For our vast informal sector, it has been a triple whammy. Modest earners had been hit hard by a shock-and-awe drive for formalization a few years earlier, while an overall slowdown of India’s economy worsened a job scarcity that is yet to ease. To be sure, free food rations and job handouts played vital roles in offering the poor relief. But the distress has spanned multiple socio-economic classes. Credible reports suggest that even middle-class homes were pushed into penury. In times of hardship, practical objections raised by critics must not stand in the way of an urban job guarantee for the needy.
Inequality is a more complex problem than poverty, but it accentuates India’s need for an even more foundational safety net. For welfare efficiency, we should institute leak-proof direct transfers covering all adults. No doubt, a UBI scheme would be expensive. For about a billion beneficiaries, it would cost an annual ₹12 trillion just for each adult to get a monthly ₹1,000. But what looks like premature welfarism today could well be affordable tomorrow as central coffers expand, especially if we snip inefficient fiscal expenses and urge the non-needy to opt out. An eligibility cut-off is sure to be proposed, but a denial criterion could defeat its inclusivity and pose barriers to upward mobility at that level. As for the worry of workers slackening off, an assured income would act as a belly-filler at best, so that should not deter an Indian UBI plan. In general, misgivings over a backward bend in an economy’s labour-supply curve caused by cash giveaways have been debunked by studies. In the US, a 2018 working paper by Ioana Marinescu on the behavioural effects of cash transfers (bit.ly/3sPRRm2) found just a 1% drop in labour supply induced by a 10% income boost. Earlier research by Abhijit Banerjee and others, outlined in ‘Debunking the Stereotype of the Lazy Welfare Recipient’ (bit.ly/3G7zOgw), had similar findings for emerging economies. Even if it does induce some laziness, it would be a price worth paying. It’s time for a plan to share public funds with all citizens in need. Let’s aim to redesign redistribution, employ a digital rupee and give the concept a literal makeover.
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