How India can do UBI
Universal Basic Income is a practical solution to poverty and inequality
The old idea of universal basic income (UBI) – of the state paying everybody a uniform amount as part of welfare – is getting some traction in political discourse worldwide. On the left, it is regarded as a simple antidote to poverty. On the right, it is viewed as a means to demolish complex welfare bureaucracies while meeting some social transfer obligations without weakening work incentives significantly.
Let me first clarify some issues of the fiscal space which both groups raise. The most recent estimates (made at the National Institute of Public Finance and Policy) suggest that (central plus state) subsidies that mainly go to better-off people (‘non-merit subsidies’) amount to about 5% of GDP. In addition the central budget alone shows ‘revenues foregone’ (primarily tax concessions to companies) coming to about 6% of GDP. Even if one-third of these revenues foregone are made available for this purpose, added to the non-merit subsidies, it comes to 7% of GDP potentially available for UBI, which is a substantial sum, more than twice the total amount currently spent on all anti-poverty programmes.
Moreover, there is no reason why we should assume there is no scope for more taxation. The tax-GDP ratio in India is substantially lower than in China, Brazil and some other developing countries. Our real estate and property tax assessments are absurdly low compared to their market value. We have zero taxation of agricultural income, long-term capital gains in equity markets, and of wealth and inheritance – this is at a time when our wealth inequality is mounting (even from NSS household survey data which underestimate the wealth of the rich, the standard Gini coefficient measure of asset inequality rose from 0.66 in 1991-92 to 0.75 in 2011-12, which is now in the Latin American range).
So if India can divert some of the subsidies (and revenues foregone) from their current better-off recipients and introduce significant fresh taxation of the rich, UBI of about a thousand rupees per person per month is fiscally affordable. I’d not object if with a smaller UBI, part of the extra revenues are spent on public goods like health, education and infrastructure.
Some resources may also be released by terminating some of the particularly wasteful welfare programmes, but i am against UBI replacing current programmes like ICDS, mid-day meals, and MGNREGA. As an experiment UBI may begin only with women, maybe in urban areas until banking services spread to remote areas and in states where current welfare measures are particularly leaky.
I am often asked, do you want to pay this money even to the rich? Yes, primarily because normatively i want UBI as part of a basic right of every citizen to minimum economic security. (Practically, if some asset threshold can be transparently implemented to exclude the very rich, i’ll not object. The history of targeting in India is, unfortunately, riddled with controversy and corruption). To the extent UBI is funded by taxes and withheld current subsidies to the rich, the money otherwise is already going to the rich. Also, part of UBI to the rich will return to the government in the form of taxes.
For far too long the default redistributive option for Indian politicians has been job reservation and subsidisation of private goods (food, fertilisers, fuel, credit, etc). I want bureaucratic and political attention to be focussed more on public goods and welfare services that are universal – like UBI, universal healthcare, etc – away from the structures of patronage distribution to particular groups or individuals.
Of course, the better-off in India – businessmen, rich farmers, the salaried class – will not easily give up on the subsidies and handouts they currently enjoy. This means we should think in terms of mobilising public opinion and activate social movements on a platform like UBI. In particular, as the workers in the informal sector will be the largest beneficiaries of UBI, it can provide a common bridge between them and the unionised formal sector workers, a divide which for many years has weakened the labour movement. Today about one-third of workers even in the organised sector are contract labourers deprived of most benefits. Unions have been demanding benefits for the latter for some time; their struggle will be strengthened if it now becomes part of a much larger movement for UBI.
One should have no illusion about the difficulties in the political process for implementing UBI. But one thing going in its favour is that it attracts support from people in different parts of the political spectrum, which may someday generate a winning coalition.
-(The writer is Professor at the Department of Economics at the University of California, Berkeley.)