Pie in the Sky, Given India’s Tax Revenues
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.