Pie in the Sky, Given In­dia’s Tax Rev­enues

The Economic Times - - The Edit Page -

The Eco­nomic Sur­vey makes a case for re­plac­ing In­dia’s many di­rect and in­di­rect sub­si­dies for the poor with one Uni­ver­sal Ba­sic In­come (UBI) scheme. This idea, be­ing tossed about by aca­demics and pol­i­cy­mak­ers re­cently, pro­poses a lump­sum in­come trans­fer, cal­cu­lated ac­cord­ing to poverty lines or any other cri­te­rion, to be handed over un­con­di­tion­ally, to any­one who qual­i­fies for these grants. It is an ap­peal­ing thought, but alas, in­ap­pli­ca­ble in In­dia. The virtues and vices of UBI schemes have been de­bated for decades. Its de­trac­tors ar­gue that a scheme that guar­an­tees a ba­sic in­come could re­duce work ef­fort: by as much as 5% per per­son per year. Sup­port­ers ar­gue this cost will be more than off­set by lower ad­min­is­tra­tive costs of run­ning large wel­fare pro­grammes. In In­dia, with its abysmal pub­lic health­care sys­tem and ex­tremely in­ef­fi­cient sub­sidy pro­grammes, these ar­gu­ments are ir­rel­e­vant. A ba­sic in­come scheme for the poor al­ready ex­its, the Mahatma Gandhi Na­tional Ru­ral Em­ploy­ment Guar­an­tee Act (MGNREGA), which guar­an­tees 100 work­days per year at min­i­mum wage, to who­ever wants it. It is a dole, the work part is meant to be a self-se­lec­tion method: the un­de­serv­ing rich are un­likely to turn up for man­ual labour. MGNREGA costs just 0.3% of GDP, far lower than any UBI scheme; it ben­e­fits about 50 mil­lion peo­ple, mostly women, and has had an en­dur­ing knock-on ef­fect in boost­ing ru­ral in­comes and wage rates. When In­dia can raise tax rev­enues adding up to a mere 16.5% of GDP, and man­ages a gen­eral gov­ern­ment ex­pen­di­ture of about 27% of GDP — 57% for France and 38% for the US — only by run­ning up a fis­cal deficit of close to 7% of GDP, talk of UBI is mean­ing­less. Ex­clu­sion er­rors would af­flict UBI as well, given In­dia’s po­lit­i­cal econ­omy.

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