Poverty & Inequality

Decoding universal basic income for India

  • Blog Post Date 20 January, 2017
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Jean Drèze

Ranchi University; Delhi School of Economics


In this article, Jean Drèze argues that while universal basic income is a good idea in principle, as far as India today is concerned, it sounds like premature articulation. It could also become a Trojan horse for the dismantling of hard-won entitlements of the underprivileged.

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A recent headline in Quartz, an otherwise serious media agency, claims that Jammu and Kashmir (J&K) is the first state in India to "commit to a universal basic income" (UBI). A glance at the original source quickly negates this claim: it is based on nothing more than "seeds of a thought" (sic) from the Finance Minister of J&K about possible cash transfers for a small minority of poor households. This is not a commitment, and it is not UBI anyway.

There have been other cases of active promotion of UBI in the business media in recent weeks. For example, a guarded statement by Professor Guy Standing, welcoming news that UBI might be discussed in the forthcoming Economic Survey, was widely relayed as an insider's revelation that UBI was about to be launched in India. Similarly, reference is often made to Finland as "the first country with UBI”, yet Finland has gone no further than a tiny pilot scheme of unconditional cash transfers for 2,000-odd recipients. Clearly, UBI has become a subject of half-truths, if not post-truths.

But let's leave propaganda aside for now, and look at UBI proposals on their own merits. Two influential proposals have been made recently. Pranab Bardhan, citing National Institute of Public Finance and Policy (NIPFP) estimates of "non-merit subsidies" to the tune of 9% of GDP (gross domestic product), argues for the bulk of this to be spent on UBI instead. With a little top-up from reduced tax exemptions, he proposes a basic income of Rs. 10,000 per person per year at a cost of 10% of GDP. On a more modest note, Vijay Joshi proposes spending 3.5% of GDP on a UBI scheme where everyone from aam admi to Ambani gets a cash transfer equivalent to one-fifth of the poverty line. Even 3.5% of GDP is ambitious: about three times as much as public expenditure on healthcare, and more than 10 times the cost of the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA).

I have liked the idea of UBI for a long time. In countries (like Finland) that can afford a generous UBI and also have first-rate public services, it has two attractive features. First, UBI is a fool-proof way of safeguarding the right to dignified living. Second, it gives people the option to live without working (or rather, without doing paid work) if they are willing to settle for a simple life. And why not?

As far as India today is concerned, however, UBI proposals strike me as a case of premature articulation. To start with, the said NIPFP estimates go back to a study published in 2003 and based on 1998-99 data - almost 20 years old. More recent work, also at NIPFP, suggests much lower subsidy figures as a proportion of GDP. Note also that many of these subsidies are implicit (for instance, railway tickets sold below transport costs), and that the bulk of the non-merit subsidies are given by state rather than central governments. Recovering this so-called 'fiscal space' is not going to be easy.

Further, why should the bulk of this fiscal space (such as it is) be claimed by UBI alone? There are many other urgent claims on public expenditure - education, healthcare, environmental protection, essential infrastructure, to name a few. Mobilising 3.5% of GDP for UBI is bound to take many years under any plausible script, not to speak of 10% (if it is advisable at all).

Meanwhile, should the limited resources available for cash transfers be used to kick-start UBI at a very low level of 'basic income', or are there better options? I believe there are. Universal maternity entitlements and social security pensions would be a good start. If UBI "is really an extension of the idea of pension”, as Bardhan aptly points out, then why not begin with pensions? Maternity entitlements, for their part, are due since 2013 under the National Food Security Act.

Incidentally, India already has one of the closest things that any country has by way of UBI, though it is not quite universal and the transfers are in kind, not cash: the Public Distribution System (PDS). There is no plausible scenario whereby the Indian government would retain the PDS along with a cash-based UBI scheme. Therefore, the main question a low-level UBI proposal would raise is whether, when and how the PDS should be replaced with cash transfers. The sobering results of recent attempts to do that in Puducherry and Chandigarh suggest that it would be unwise to go beyond these pilot areas for the time being. Earlier experiences of a messy transition to bank payments of MNREGA wages and of chaotic imposition of biometric authentication on the PDS reinforce the need for great caution in these matters.

It is often pointed out that UBI has the virtue of having supporters on the right and the left. This shared support, however, comes from incompatible perspectives. For the left, UBI is part of a comprehensive social security system that would also include universal healthcare, free education, good public services, some transfers in kind (for example, school meals), and other forms of social support. For the right, especially in India, UBI is an adjunct of deep cuts in other social programmes such as the PDS and MNREGA. Some UBI advocates have already made an explicit case for dismantling both.

Finally, UBI proposals need to be distinguished from what the Government of India is likely to do with them. It is not difficult to imagine how these proposals might be reduced to a half-baked scheme of targeted cash transfers with no legal safeguards and no indexation to the price level, combined with closing the PDS and possibly MNREGA as well. Indeed, highly targeted schemes of the sort envisaged by the Finance Minister of J&K (or, say, by Surjit Bhalla) are already passing for 'UBI'.

Seen in this light, there is a real danger of UBI becoming a Trojan horse for the dismantling of hard-won entitlements of the underprivileged. The recent wave of pro-UBI propaganda in the business media (generally hostile to ambitious social programmes) is suspicious in this regard. These issues, in my view, need greater attention in the lively debate on UBI among development economists.

This article first appeared on NDTV.com.

Other I4I articles on UBI can be accessed here: http://ideasforindia.in/index.php?option=com_mblog&view=detail&id=632&Itemid=110 

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