A hasty UBI roll-out can do more bad than good

Paltry cash transfers will not solve India’skeydevelopmentchallenges

Speculations are rife about a big announcement by the Modi government to assuage the rural economy before the 2019 elections. Many believe that a Universal Basic Income (UBI) scheme is a better way to do this. The idea has gained traction after the Telangana Rashtra Samithi (TRS) is supposed to have made electoral gains from its cash transferbased Rythu Bandhu Scheme. Sikkim has announced that it will start a UBI scheme from the next financial year.

There are at least three reasons why any hasty decision on UBI will be counter productive. One, unlike farm loan waivers or minimum support price (MSP) hikes, UBI is neither a small, nor a one-off fiscal commitment. An analysis by Tadit Kundu published in Mint has estimated that providing all individuals with a poverty line equivalent UBI would cost 1.5 times more than the Centre’s total tax revenues. There is no way this can be financed entirely by the Centre. This brings up the question of fiscal federalism. There is a large regional divergence in income and poverty levels in India. These patterns are often compounded by inequalities in revenue mobilisation. This is why a one-size-fits-all sharing formula on something like a UBI cannot work. Two, starting something like a UBI is bound to lead to significant dilution or roll-back of programmes such as the public distribution system. Winding down the PDS will also mean a huge reduction in MSP-based procurements.

Three, India’s long-term development challenge lies in three key areas: health, education and non-farm job creation. Given India’s overall low-income levels, there is no way the private sector can be expected to lead an egalitarian transformation in health and education. We will continue to perform badly in employment, unless health and education provisions improve. The Indian State’s 21st century welfare challenge lies in overcoming the fiscal and institutional challenges in these sectors. It will do well to shed misplaced hopes that paltry cash transfers can do this job.