Is In­dia ready for a uni­ver­sal ba­sic in­come?

Mint ST - - PLAIN FACTS - Ta­dit Kundu feed­[email protected] NEW DELHI Farm loan waiver*

Un­like farm loan waivers, UBI does not im­pair credit cul­ture and, un­like farmer-spe­cific trans­fers, does not seek to tie down peo­ple to farm­ing

The idea of a uni­ver­sal ba­sic in­come (UBI) has gained cur­rency in the West be­cause of the threat of au­to­ma­tion-in­duced job losses. In In­dia, the idea first gained cur­rency as a so­lu­tion to chronic poverty and gov­ern­ment’s fail­ure to ef­fec­tively tar­get sub­si­dies to­wards the poor.

Amid per­sis­tent farm dis­tress and weak wage growth (bit.ly/2tjmewt) across oc­cu­pa­tions, the idea of an in­come sup­port scheme seems to be gain­ing ground once again. Some ad­vo­cate an in­come sup­port scheme for farm­ers (bit.ly/2qslyfk) while oth­ers ad­vo­cate a broader in­come sup­port for all (bit.ly/2m8elz5).

Still oth­ers, such as the for­mer chief eco­nomic ad­viser Arvind Subra­ma­nian (bit.ly/2hhzbka) favour an in­come sup­port scheme tar­geted to­wards the poor, that is, a non-uni­ver­sal ba­sic in­come.

The idea of an in­come sup­port scheme for farm­ers draws from the Rythu Bandhu scheme ini­ti­ated by he Te­lan­gana gov­ern­ment which may have helped the Te­lan­gana Rash­tra Samithi (TRS) gov­ern­ment storm back to power. Un­like farm loan waivers or min­i­mum sup­port prices for spe­cific crops, a Rythu Bandhu-type in­come sup­port scheme does not dam­age credit cul­ture or dis­tort mar­kets. How­ever, the Rythu Bandhu scheme ex­cludes ten­ant crop­pers who con­sist of around 13.7% of farm hold­ings all across In­dia. (chart 1)

Un­der Rythu Bandhu, the gov­ern­ment pro­vides ₹4,000 per acre per sea­son to sup­port farm in­vest­ment and it is up to the land­lord to pass on the ben­e­fit to the ten­ants. Even in its cur­rent form, ex­tend­ing the scheme across In­dia will cost a prohibitively high amount of ₹3.1 tril­lion in one year alone. Viewed over the pe­riod of five years—the term of one gov­ern­ment in In­dia—a Rythu Bandhu-type scheme would cost much more than the farm loan waivers re­cently an­nounced across states. (chart 2) More­over, such a farmer-spe­cific scheme might en­cour­age peo­ple to re­main tied to agri­cul­ture, a rel­a­tively less pro­duc­tive sec­tor of the econ­omy.

Com­pared to a farmer-cen­tric scheme, UBI holds greater ap­peal as it does not dis­crim­i­nate based on oc­cu­pa­tion or land own­er­ship, and does not de­pend on ac­cu­racy of tar­get­ing to work. But the chal­lenge with UBI is the pro­hib­i­tive costs as­so­ci­ated with it. Pro­vid­ing all in­di­vid­u­als with a poverty line-equiv­a­lent UBI (₹1,180 per month for each in­di­vid­ual, in 2017-18 prices) would cost around ₹19 tril­lion or 11.4% of gross do­mes­tic prod­uct (GDP). This would be 50% more than cen­tre’s to­tal tax rev­enues, and would cer­tainly not be sus­tain­able.

How­ever, even much lower lev­els of UBI might suf­fice in im­prov­ing the lives of the poor. For in­stance, a 2011 study

MINT GRAPHITI by United Na­tions In­ter­na­tional Chil­dren’s Emer­gency Fund (UNICEF) and the Self Em­ployed Women’s As­so­ci­a­tion (Sewa) in ru­ral Mad­hya Pradesh showed that pro­vid­ing ₹300 per month to each adult and ₹150 to each child can make a big dif­fer­ence to the lives of the poor (bit.ly/2sx0luf). In 2017-18 prices, it amounts to around ₹18,000 per year for a fam­ily of five – two adults and three chil­dren.

A sim­i­lar amount, ₹16,000 per year to a house­hold of five, has been sug­gested by the renowned de­vel­op­ment econ­o­mist Pranab Bard­han. Such a uni­ver­sal ba­sic in­come sup­port (UBIS) would cost around ₹4.3 tril­lion or 2.6% of GDP.

Even such a scheme is fea­si­ble only if the cen­tre trims cur­rent sub­sidy and wel­fare ex­pen­di­ture. Some of these schemes in­clud­ing the Ma­hatma Gandhi Na­tional Ru­ral Em­ploy­ment Guar­an­tee

If one-third of agri­cul­tural debt is waived off Act (MGNREGA) are of­ten deemed to be leaky and poorly tar­geted al­though opin­ion among econ­o­mists is di­vided on this is­sue. Some think that these schemes are be­yond redemp­tion and should be re­placed by a guar­an­teed in­come (bit.ly/2ssngq), while oth­ers con­sider schemes such as MGNREGA to be bet­ter al­ter­na­tives (bit.ly/2mzn6y1) to UBI, if only tar­get­ing could be im­proved.

The var­i­ous schemes of the cen­tral gov­ern­ment, which can po­ten­tially make way for a UBIS to­gether amount to around 3% of GDP, in­clud­ing food sub­sidy un­der the pub­lic dis­tri­bu­tion sys­tem (0.84% of GDP), MGNREGS (0.33% of GDP), fer­til­izer sub­sidy (0.4% of GDP), pe­tro­leum sub­sidy (0.15%), and mis­cel­la­neous sub­si­dies and rev­enue fore­gone due to tax ex­emp­tions. (chart 3) Given that the with­drawal of state sup­port across so many sec­tors could be highly dis­rup­tive, some econ­o­mists ad­vo­cate a par­tial and grad­ual with­drawal.

The de­vel­op­ment econ­o­mist Reetika Khera has sug­gested that the move to­wards UBI should start with a ‘uni­ver­sal’ pen­sion of ₹1,000 per month to the eas­ily iden­ti­fi­able groups of el­derly, wid­owed, and dis­abled (bit.ly/2rkz3sl). Ad­di­tion­ally, the gov­ern­ment should en­sure ma­ter­nity en­ti­tle­ments of ₹6,000 per child. Such a scheme would cost a rel­a­tively man­age­able 1.3% of GDP.

It is lit­tle won­der that in a quasi-fed­eral democ­racy such as ours, state gov­ern­ments have taken the lead in start­ing dif­fer­ent va­ri­eties of in­come sup­port schemes. How­ever, it is worth keep­ing in mind that sev­eral state gov­ern­ments do not have the fis­cal space to launch even a wa­tered-down ver­sion of a ba­sic in­come sup­port scheme. (chart 4)

What form an in­come sup­port scheme even­tu­ally takes will ul­ti­mately de­pend as much on eco­nomic mo­ti­va­tions as on po­lit­i­cal ones (bit.ly/2vlvlns). But re­gard­less of the form it takes, the idea of an in­come sup­port scheme or di­rect cash trans­fers is here to stay for some time. Two of In­dia’s for­mer chief eco­nomic ad­vis­ers—kaushik Basu and Arvind Subra­ma­nian—can take some credit for that.

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