There is a compelling case for disbanding all forms of support and replacing them by ‘universal basic income’ (UBI) so that people can live with dignity
At an interaction organized by the Confederation of Indian Industry (CII) on July 7, 2023, Chief Economic Advisor (CEA) V Anantha Nageswaran ruled out Universal Basic Income (UBI) for India saying this may create ground for “perverse incentives” and dissuade people from seeking income-generating opportunities. So, “UBI is not something that should be on the agenda in the near term”.
In contrast, in the Economic Survey (2016-17) presented on January 31, 2017, the then CEA Arvind Subramanian had advocated UBI to substitute a plethora of extant subsidies. He couched the idea in Mahatma Gandhi’s (MG) philosophy that every citizen of India is entitled to live with dignity: “Whether or not a person can lead a life with dignity depends on his ability to generate a certain minimum level of income to make it possible. Left to himself, he may not be able to get to this level either because he has no job, or he is a small/marginal farmer perennially entrapped in subsistence.”
Under such circumstances, the government may intervene to provide ‘unconditionally’ and on a ‘regular’ basis financial assistance – call it unconditional basic income – to ensure that he can lead a decent living as contemplated by MG.
The idea didn’t find mention in the speech of Finance Minister Arun Jaitley for the 2017-18 budget presented on February 1, 2017. However, in an interview given to economic editors on February 1, Jaitley opined that “UBI is an idea whose time should come, but politics of this country is not mature yet for its implementation.”
Meanwhile, ahead of the 2019 Lok Sabha elections, Rahul Gandhi had promised a minimum income support program or Nyuntam Aay Yojana (NYAY) under which Rs 72,000 would be transferred every year to the poorest 20 per cent or 5 crore families in the country.
If a coalition led by Congress comes to power in 2024, UBI could see the light of day. In case, Modi – government continues, going by what the incumbent CEA says, it seems unlikely. The moot question is:
Time for UBI has come
There are millions in India who either don’t have a job or whose meagre earnings don’t permit a decent living. To address their plight, governments — both at the Centre and states — run a plethora of welfare schemes. Most of these schemes aim at providing goods and services to the beneficiaries either free or subsidized prices. The very design of these schemes and the manner they are administered is causing losses to the economy running into tens of thousand of crore.
Look at the subsidy on food (Rs 287,000 crore spent during 2022-23) given under the National Food Security Act (NFSA). The beneficiaries get food at a throwaway price of Rs 1/2/3 per kg for coarse cereals, wheat and rice. It is given to a humongous 820 million persons which is far higher than the number of poor who alone should get. In 2015, a committee under Dr Shanta Kumar recommended that coverage under the scheme should be reduced from the existing 67 per cent to 40 per cent. But, this has not been acted upon.
The scheme is prone to massive leakages. When, tens of millions of tons of food is available in the public distribution system (PDS) at a minuscule price of Rs 1/2/3 per kg (during CY 2023, even this minuscule amount is not charged) against market price which is many times more, diversion is inevitable. Further, considering that reimbursement of the excess cost of supply (minimum support price or MSP paid to farmers plus handling and distribution cost) over the price paid by beneficiaries is made on an ‘actual’ basis, there is ample scope for corruption and inefficiencies. Likewise, fertilizer subsidy (Rs 255,000 crore spent during 2022-23) goes to ‘all and sundry’ instead of going only to the poor farmers. This is because every farmer including those with large land holdings of 10 hectares plus gets urea at the same price of Rs 242 per 45 kg bag. Ditto for other fertilizer types.
According to the Economic Survey (2015-16), 24 per cent of fertilizer subsidy is cornered by large/rich farmers. The survey also concluded that about 41 per cent of fertilizer subsidy is leaked via diversion to chemical factories and smuggled to neighbouring countries. When urea is available in the supply chain for a mere Rs 242 per bag against the market price being 10 times more, diversion is inevitable.
The extant system of routing subsidies through fertilizer suppliers (by keeping MRP low) and paying them on an ‘actual’ basis also contributes to inefficiencies and inflated payments. According to the ES (2015-16), 24 per cent of fertilizer subsidy goes to inefficient manufacturers. The position today won’t be very different as the fundamentals of the system remain intact.
Keeping the price of inputs at an artificially low level makes users complacent resulting in their inefficient use. Thus, excessive use of urea is rampant leading to an imbalance in nutrient use and lower crop yield. At another level, the supply of power at heavily subsidized tariffs (free in some states) to farmers leads to excessive water use causing the denudation of groundwater.
The Centre also subsidizes the availability of credit. A farmer gets a crop loan at a subsidized interest rate of seven per cent; an additional incentive of three per cent is provided for prompt payment. The subsidy is paid from the budget. Large farmers, who account for 0.6 per cent of the total number, got away with 41 per cent of crop loans (2016-17).
The above major ones apart, the Centre and states run a host of other schemes promising the supply of goods and services free of cost. In many schemes, the benefit goes to all and sundry; for instance, free bus rides for women in Delhi and Karnataka. These may yield electoral gains for the concerned political party but harm the economy.
Given the above, there is a compelling case for disbanding all existing forms of support and replacing them with what Subramanian terms ‘unconditional basic income’ or UBI. Some existing schemes do provide cash assistance; for instance, Rs 6000 per annum to farmers under PM – KISAN but that is merely an adjunct intended to help them buy agricultural inputs. It is far from being UBI. The focus of UBI necessarily has to be on people below the poverty line. There are multiple estimates of the number of poor people in India. To illustrate the point, let us take the number to be 250 million.
What should be the level of UBI?
This can be determined by keeping in mind what the budget can afford. The Centre spends a total of Rs 562,000 crore on subsidies (2022-23). If only it disbands these subsidies and uses the money thus saved to give cash/income support under the UBI scheme, each of the 50 million poor families (assuming 5 persons per family) can get Rs 112,400 per annum or around Rs 9400 a month.
The support to beneficiaries once identified must not be given perpetually. They should be kept under watch continuously. Those crossing the poverty line should be deleted as and when that happens. Others who were better off earlier and become poor should be included. However, the government should endeavour to ensure that there are ample opportunities for ‘everyone’ to increase their income and none remains poor. In the long run, it should ensure that people don’t need UBI.
(The writer is Policy Analyst)
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