Ahead of the forthcoming budget on February 1, there is a buzz surrounding the feasibility of a universal basic income (UBI) in the Indian context. 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 measure is intended to provide 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. This idea has gained sufficient traction to reportedly feature in the Economic Survey that is released before the budget.
There is no swadeshi provenance to UBI. In fact, it has come from the developed countries. In these uncertain times, when the world of work is being upended by disruptive technologies and rapid spread of automation and robotisation, the idea to provide a guaranteed income to one and all appears to be one whose time has come. This can certainly reduce fears of globalisation wreaking havoc in the workplace. But if this idea were indeed so compelling, why then was it overwhelmingly rejected by the Swiss in early June 2016? Other developed countries like Finland may be tempted to try it out.
In India, a UBI is highly appealing to economic reformers who prefer a minimalist State. When the national rural employment guarantee scheme was in the offing, such reformers trashed the idea as it would entail massive leakages and corruption. The distribution of currency notes from a helicopter instead had a better chance of reaching the intended beneficiaries, they argued. They are fed-up with the vast inefficient subsidy Raj ostensibly intended for the poor. It is far better to scrap all these dysfunctional subsidies and anti-poverty schemes and provide a direct cash transfer to all instead.
But is a UBI feasible? Is it affordable? For instance, if a guaranteed minimum income is provided universally, where would the vast majority of citizens access better nutrition, healthcare and educational facilities for their children? Of what use is the basic income when such facilities are not available in the far-flung villages of the country? In the developed countries, a UBI was essentially do-able as many of them were welfare States that provided essential public services, including child protection. In India, a UBI cannot be a substitute for the State retreating from the provision of essential services.
The affordability question alone cannot derail a UBI in India. It is affordable with greater political will. Taking out all subsidies, reducing unnecessary tax exemptions, taxing agricultural incomes among other measures frees up resources up to 10% of the gross domestic product annually. Joshi 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. This leaves 3.5% of GDP that can be used for UBI. This would entail Rs 5.32 lakh crore which is double the budgeted subsidy bill for 2016-17.
Of course, there is bound to be tremendous resistance to wide-ranging subsidy cuts and other tax exemptions being removed. But the most difficult part of providing a UBI here is to massively step-up social sector expenditures in primary and secondary education, public healthcare facilities and other essential social infrastructure which are done largely by the individual states. Huge investments are necessary to improve, nutrition, health and schooling. It is only sometime in the future when the delivery of such services becomes reasonably efficient that a UBI really makes sense. Naturally all eyes will be on what the forthcoming Economic Survey has to state in this regard.
N Chandra Mohan is an economics and business commentator based in New Delhi
The views expressed are personal