The ‘Universal Basic Income’ Proposal

Editorial from Economic and Potitical Weekly

Imagine a world in which everyone is unconditionally given a subsistence-level income by the state. This, combined with access to well-functioning public services would be, to quote Jean Dreze, “a fool-proof way of safeguarding the right to dignified living.” The chapter on “Universal Basic Income (UBI): A Conversation With and Within the Mahatma” in the Economic Survey 2016–17 (ES) begins with this. But unfortunately, given self-imposed “fiscal prudence,” the proposed UBI, which is neither “universal” nor “basic”, requires the dismantling of the most socially necessary welfare schemes, namely, the Public Distribution System (PDS), the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and the Mid-day Meal Scheme. The envisioned UBI turns out to be no more than a small compensatory transfer (or income top-up) to a part of the population, and that too, one that will require the government to prune or do away with in-kind transfers of food, guaranteed minimum days of wage work, and other public social security measures.  

The desire is to stick to budget neutrality even as its conception is the most illogical part of the UBI vision. In the face of the monstrous economic inequality that plagues the country, surely a proper UBI can be financed from income and wealth taxation of the very rich, as also, from indirect taxation of socially less desirable economic activities. Given that India has one of the lowest tax to gross domestic product ratios in the world, more so with respect to direct taxes (that include wealth and corporate taxes), it is inconceivable why the policymakers of this country cannot envisage a UBI that builds on higher tax revenue collections to expand the fiscal space.

Instead, a UBI as seen in the ES is anchored on minimising fiscal cost and pruning the government’s social-welfare administrative machinery. The chapter argues that the current social security system in India is bulky, inefficient, and in large part misallocates resources, and that these “realities” necessitate a serious thinking-through of better ways of spending public money for social welfare. It emphasises the gross misallocation of resources under six welfare schemes, in two simplistic maps which show that the shares of welfare spending in the poorer districts are less than the shares of poor persons in these districts. The UBI, the authors of the ES claim, is a way of rectifying this imbalance. However, any such rectification would assume a targeted cash transfer, not a UBI.

Further, it must not be overlooked that each of these welfare schemes has underlying mechanisms that ensure a safety net against market uncertainties. The PDS entails the state’s interventions in agricultural commodity markets that have historically resulted in more stable prices and a semblance of income security for farmers. The political currency of the public procurement system and minimum support prices is but an indication of the significance of such market interventions. The Mid-day Meal Scheme has shown that cooked meals in schools encourage school enrolment, apart from providing timely nutrition. The MGNREGS not only promises minimum days of wage work, but also creates and helps maintain locally planned public infrastructure, protects against seasonality of work, and provides some bargaining power to workers in rural labour-market wage setting. In fact the ES does make a passing reference—“replacing the PDS will increase market prices of cereals the poor face. Similarly, phasing down MGNREGS might reduce market wages for rural casual labour”—but goes on to make a case against these interventions.

Between 2004–05 and 2011–12, the offtake from the Food Corporation of India (FCI) grew by 71%; and household purchases through the PDS grew by 117%, indicating greater, more efficient coverage, while leakages in the PDS have come down from 54% to 35%. The ES extrapolates the leakage figures up to 2016, which points to a further reduction to 20.8%, without accounting for improvements in technology and expansion of coverage that must have occurred in the last five years. There has been a rise in rural wages, which in part is attributable to MGNREGS. Undeniably, rural infrastructure and more recently, farm assets are being created substantially under this scheme.

What is important today is that provisioning of social security services and goods has become a matter of political importance even in India’s northern states, as it has been for decades in the southern ones. In fact, in a few of these states, corruption and leakages have been reduced in the PDS and the MGNREGS even as they cover a greater proportion of the targeted population. This needs to be emulated in other states. To say that “the time is ripe for serious discussion” around a UBI that would entail dismantling existing hard-won social welfare measures, does not seek to build on past gains or social experience. The past decade has shown that the implementation of social welfare programmes can be improved by the participation of beneficiaries, ensuring greater transparency and accountability, the involvement of concerned non-governmental organisations, a degree of political will, and a proactive local administration.

Editorial from EPW,  Vol. 52, Issue No. 6, 11 Feb, 2017