Inequality report brings buzz back to universal basic income scheme

By N Chandra Mohan

There is again a buzz surrounding the provision of a universal basic income (UBI) recommended by a report on the state of inequality commissioned by the Economic Advisory Council to the Prime Minister (EAC-PM).

Introducing a UBI was one suggestion to reduce the widening income gaps towards a more equal distribution of earnings in India’s labour market.

Simply put, a UBI is a sum of money provided by the State to all citizens to take care of the bare necessities of life. This provides a “safety net preventing any citizen from sinking below a basic minimum standard of living” according to Vijay Joshi, Emeritus Professor, Merton College at Oxford, who together with Professor Pranab Bardhan, University of California at Berkeley, were perhaps the earliest economists who recommended such a scheme in India. This idea gained sufficient traction to feature in the Economic Survey for 2016-17 as “conceptually appealing”.

The UBI’s appeal — especially to economic reformers who prefer a minimalist State — is that it represents a possible alternative to various social welfare programmes that are not effective in bringing down poverty. When the national rural employment guarantee scheme was in the offing during the first term of the earlier UPA regime, such reformers trashed the idea as it would entail massive leakages and corruption.

They are fed-up with the vast inefficient subsidy raj ostensibly intended for the poor. It is far better instead to scrap all these dysfunctional subsidies and anti-poverty schemes and provide a direct cash transfer to all instead.

Is UBI affordable? Is it feasible? Joshi had pegged the cost at 3.5% of GDP, while the Economic Survey estimated it at 4-5% of GDP assuming those in the top 25% income bracket do not participate. Joshi’s tab is to be raised by taking out subsidies, reducing tax exemptions, taxing agricultural incomes, among other measures, which frees up resources up to 10% of GDP.

He suggests that 2.5% can go for reducing the fiscal deficit of central and state governments. Another 4% can be used for raising public investment and social expenditures.

The balance is for UBI which is three-times the budgeted subsidy bill for 2022-23. Of course, there will be resistance to subsidy cuts and tax exemptions being removed. “We will be landing in a situation where people will stand up in Parliament and demand continuation of the present subsidies and over and above that (UBI)”, former finance minister Arun Jaitley had said.

However, the affordability question alone cannot derail a UBI in India as there is a critical mass of quasi-rural basic income schemes that have been implemented without fiscal stress and can be scaled up. The PM Kisan Samman Yojana transfers Rs 6,000 each to 120 million small and marginal farmers. This scheme follows the highly successful Rythu Bandu scheme of Telengana that has benefitted 5.8 million farmers with transfers of Rs 5,000 per acre per season. Not to be outdone, Odisha has unveiled its Krushak Assistance for Livelihood and Income Augmentation or KALIA. If Rythu Bandhu benefitted only landowners with clear titles to their land, KALIA is more inclusive in providing financial assistance to all cultivators, including share croppers and tenants who do not have titles to their land and landless agricultural labourers as well. Then there is Andhra’s Rythu Bharosa scheme and Chhattisgarh’s Rajiv Gandhi Kisan Nyaya Yojana, among others.

PM Kisan’s cash transfer constituted 6.43% of the annual income of farmers at an all-India level in 2018-19, which is much higher for poorer states like Bihar, Jharkhand, Uttarakhand, Odisha, MP and Chhattisgarh. The extent of benefit accruing to small and marginal farm size holders is also 20 times higher than to those with medium and large farms.

KALIA’s benefits to small and marginal farmers are significant as they are in addition to PM Kisan. Barring Rythu Bandu, where medium and large farmers are more benefitted, the income support in various other state government schemes is also more inclusive and promotes more equity across farm sizes according to “Income support schemes: evaluation of PM Kisan vis-a-vis state government schemes” by HN Kavitha et al in the Economic and Political Weekly, August 21, 2021.

Back to UBI, a basic question, nevertheless, is that if a guaranteed minimum income is provided universally, where would the vast majority of citizens access better nutrition, healthcare and educational facilities for children? Of what use is the basic income when such facilities are not available in the far-flung villages of the country? In developed countries, a UBI was essentially do-able (although none have done so despite discussion and debate) as many were welfare States that provided essential public services, including child protection. In India, a UBI simply cannot be a substitute for the State retreating from provision of essential services.

(The writer is an economics and business commentator based in New Delhi. His views are personal.)