Let’s talk guaranteed income NEED FOR PRIORITISING EXPENDITURE
The Economic Survey 2016-17 released on Tuesday makes a strong case for a universal basic income, in place of the current subsidy regime. “UBI is a powerful idea whose time, even if not ripe for implementation, is ripe for serious discussion,” it said.
For 2016-17, the Survey estimates UBI at ~7,620 per year per person. This is the amount needed to lift the poorest above the poverty line of ~893 per person per month computed by the Suresh Tendulkar committee.
In 2011-12, the last year for which consumption data are available from national sample surveys, UBI works out to ~5,400 per year. This amount has then been adjusted for inflation over the years to arrive at the 2016-17 estimate of ~7,620 per year. This amount will get revised yearly to account for inflation.
On intended beneficiaries of the scheme, many economists
IUNIVERSAL BASIC INCOME MULLED FOR 75% OF INDIANS, BUT TIME NOT RIPE FOR IMPLEMENTATION have argued in favour of extending UBI’s coverage to overcome the problems associated with a targeted subsidy regime. The Survey argues for quasi-universality, proposing to cover 75 per cent of the population. Providing ~7,620 per person to 75 per cent of the population would cost roughly 4.9 per cent of gross domestic product or GDP, it says.
But, it is difficult to arrive at precise estimates on the costs of the scheme for two reasons.
First, the Survey assumes that private consumption has not changed in real terms from 2011-12 to 2016-17. However, if real incomes of the poor grew the same as GDP per person, the UBI would decline to ~6,540 per person per year, the Survey says, which will cost the government 4.2 per cent of GDP.
Second, the estimate of consumption, which the Survey relies on, is based on data from surveys that include consumption on account of programmes such as public distribution system and
“Middle class” subsidies as % of GDP
LPG Railways-1 (only A/C) Railways-2 (sleeper class) Aviation turbine fuel Fertiliser (urea) Personal income tax exemptions Interest subvention scheme for farmers MUDRA (interest subsidy) Gold Sub total Mahatma Gandhi National Rural Employment Guarantee Scheme.
This means, if UBI was to be funded by replacing these existing programmes, the amount transferred would have to be increased to make up for the loss in consumption due to axing of such schemes. 0.21 0.01 0.07 0.01 0.04 0.44 0.10 0.11 0.08 1.07
But the fundamental question is how will the government fund UBI?
The Survey says: “Any government will have to decide on what programmes or expenditures to prioritise in order to finance UBI,” suggesting that the Centre would have to prune existing subsidies to
Burden of UBI
Fiscal cost as % of GDP (de facto targeting, ’16-17) NSS fund UBI.
Now, there are various subsides that are extended by the central and state governments.
The three major central government subsidies, food, fertiliser, and petroleum, together account for 2.07 per cent of GDP (2014-15 actual). For states, the corresponding figure in 2011-12 is 6.9 per cent. Then there are other schemes such as centrally sponsored ones – the top 10 together cost roughly 1.4 per cent of GDP (2014-15 actual), while the remaining 940-odd subschemes account for 2.3 per cent of GDP. Thus, some of these subsidies would have to be cut to make fiscal space for UBI. Or, as the Survey says, give people a choice between two.
For example, the Survey says eliminating subsidies to non-poor/middle class households, which amount to roughly one per cent of GDP, could provide a UBI of ~3,240 per year to all women.
But given the fiscal constraints of the Centre, the Survey pitches for joint funding by the Centre and states.
It says, “Initially, a minimum UBI can be funded wholly by the Centre. The Centre can then adopt a matching grant system, where for every rupee spent in providing a UBI by the state, the Centre matches it.” 6.40 4.90 4.30 ~6,739 ~7,613 ~10,109 UBI (per person per year, ’16-17)