10 Feb 2017 19:55 IST

The buzz over universal basic income

Given the huge outgo, a universal income scheme may inevitably become a targeted exercise

The concept of universal basic income has been grabbing a great deal of attention of late. The 2016-17 Economic Survey has a 30-page chapter on this topic.  This isn’t surprising, given that the author of the Survey, Chief Economic Advisor Arvind Subramanian, is a big supporter of it.

There can be no denying that assuring people a minimum income every month will make a dent on poverty, provide a social security net and relief from immediate financial distress.  

This concept has support from economists, on both the Right and Left sides of the spectrum, though their reasons for supporting it are quite different and even conflicting. There has also been a great deal of support for this concept in the West, given that inequality has now come to be accepted as a major issue, especially after the 2008 financial meltdown.

Finland is experimenting with a small pilot project where around 2,000 people will be given €600 every month, unconditionally. Switzerland, though, voted against a proposal of universal basic income in a recent referendum. Given how fast technology is replacing human labour, thanks to the ‘disruptive’ inventions, Western politicians are slowly warming up to this idea.

Cannot replace welfare schemes

However, in India, there are also worries over a universal basic income replacing existing welfare schemes, especially those based on legal entitlements. Those who support this idea on grounds of cutting ‘wasteful subsidies’ and streamlining existing welfare schemes are pitted against others who vehemently oppose any change in the status quo. For the latter, a guaranteed universal basic income can only be a supplement to the existing welfare schemes and not a substitute. 

The Economic Survey’s chapter on Universal Basic Income starts, rather grandly, with a couple of quotes from Gandhiji, and makes a persuasive case for the concept. But some of the suggestions made are bound to raise the hackles of those belonging to the Left.

To quote the Survey, “A Universal Basic Income promotes many of the basic values of a society which respects all individuals as free and equal. It promotes liberty because it is anti-paternalistic, opens up the possibility of flexibility in labour markets”.

The Survey spends a considerable amount of time in suggesting that under universal basic income the recipients have greater ‘agency’ as they don’t have to feel that they are being given out dole, over which they don’t have any control, hence the emphasis on ‘anti-paternalism’. The argument here is that such anti-paternalism fosters greater liberty.

To quote the Survey again, “The poor in India have been treated as objects of government policy. Our current welfare system, even when well-intentioned, inflicts an indignity upon the poor by assuming that they cannot take economic decisions relevant to their lives. An unconditional cash transfer treats them as agents, not subjects”. This is a powerful argument which libertarians will warm up to.

The Survey also dismisses the common criticism raised against universal income that it reduces the incentive to work, and it quotes several studies to prove the contrary.

Targeting of schemes

It also makes an interesting point about universal basic income acknowledging non-wage related work in the economy, the most common example being that of unpaid housework done by women. This argument will, most certainly, get the thumbs up from feminists and women’s activists.

The Survey then goes on to examine the efficacy of the existing welfare schemes. It says that food subsidy (PDS), fertiliser subsidy and the rural job scheme MGNREGA take up almost 30 per cent of the Budget allocation. It also argues that, often, schemes meant for the poor are captured by the not-so-poor, leaving the targeted beneficiaries short-changed.

Of course, there is extensive literature on targeting of welfare schemes, where persuasive arguments have been made both for and against targeting. Identifying the poor, especially in a large and diverse country like India, is fraught with difficulties and vulnerable to various social and political pulls and pressures.

To side-step these issues some States have argued for the universalisation of welfare schemes, where the rich will weed themselves out. Tamil Nadu and Chhattisgarh are the two States that universalised their PDS and the results have been very successful. The National Food Security Act can also be seen as an example of this.

Misallocation of resources

Though the Survey starts out by saying that universal basic income must be a supplement to existing welfare schemes, it does end up talking of a scenario where it will become a replacement. Its major grouse against the existing welfare schemes are misallocation of resources and the poor not benefitting from them.

This is sure to raise the hackles of many economists and not necessarily those only belonging to the Left. Economists Jean Dreze and Jayati Ghosh, in recent columns, have warned against the dangers of this happening, though both in principle support the concept. Dreze, one of the key architects of the MGNREGA when he was part of the National Advisory Council when UPA I was in power, raises concerns over funding and says universal maternity entitlements and social security pensions are better alternatives to universal basic income.

Given the huge financial outgo this scheme would entail, Ghosh believes that it would inevitably become a targeted scheme, bringing with it the usual problems of exclusion of deserving people.

Greater financial inclusion

The Survey, of course, says that for a universal basic income scheme to succeed there has to be far greater financial inclusion. India is still a country where a third of the population does not have access to banks. The government has placed great emphasis on the JAM trinity (Jan Dhan, Aadhaar, Mobile) with an objective to moving towards direct cash transfers.

This concept had gained currency during the UPA regime too, which is why it invested so much of its intellectual energy on the Aadhaar scheme despite concerns over privacy and security issues. The Modi government and the UPA seem to be on the same page, at least on this issue.

Though the Budget makes only a passing mention of universal basic income, it will be interesting to see how this issue plays out in the economic and political field in the coming days.

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