The Case Against Universal Basic Income In India

The concept of implementing Universal Basic Income (UBI) is a relevant one, that poses severe challenges to Governments and policymakers around the world. But it is also a highly controversial and contestable one. The argument about UBI will surely catch fire in the near future as we start seeing jobs getting replaced by robots at a high and sustainable pace. This brings us to the narrative of UBI. The advocates of UBI project it as a necessary unilateral transfer that the Government makes to each and every individual, enabling her to live a dignified life. This is of course, once her job or source of  employment is taken over by a robot, and she is rendered unemployed, or even more unfortunately, unemployable, with her given skill set.

The idea was UBI was pitched last year in Switzerland, a country where per capita GDP is high and inequality is very low. An amount of $2555 every month was decided by the Government to be transferred to every adult irrespective of their employment status. However, a public referendum rejected UBI with a majority of 73% voters opting against it. The reasons as given by Swiss citizens stated that a basic income would amount to laziness and discouragement from work, leading to less work and lower productivity. A Swiss minister said that if Switzerland is the only country giving out basic income, people will migrate to Switzerland easily as it is not an island nation, leading to high fiscal burden. These logical and sound arguments by Swiss citizens and politicians avoided UBI to see the light of the day in Switzerland.

The Economic Survey of India this year presents a significant discussion about the idea of UBI in India. The arguments presented in the Survey stated how a universal net in place of targeted benefits system as it exists now would lead to plugging of leakages in the subsidies given by the Government. The calculations done in the Survey were based on a transfer of Rs. 1000 per person per month, which summed up to about 10% of GDP of India. The tax-to-GDP ratio of India is 17%. Another independent study has more rationally suggested a transfer of about Rs. 18,000 per household, summing up to 3.5% of the GDP.

The Economic Survey accepts that in order to make UBI a reality in India, a number of subsidies will have to be done away with in order to release some fiscal pressure. These subsidies amounted to 5.2% of the GDP and were chosen keeping in mind their impact on the poor. The bottom 40% of the population according to income, have been considered as poor in the Survey. This 5.2% included Government subsidies towards Food and Fertilizers, that the Government cannot afford to pull out.  Next, the Survey, shows a comparative among share of poor districts and misallocation of funds in the same, spatially in two different maps. They conclude that the most poor districts have the largest shortfall.

A comparative between inclusion error (people not in target receiving the benefit) and exclusion error (people in target but not receiving the benefit) clearly shows the mismanagement of funds and bad administration on part of the Government authorities. Also , schemes like Pradhan Mantri Gram Sadak Yojana  and Swachh Bharat Mission have been discussed for misallocation towards districts which have a greater proportion of the poor. This makes no economic sense as there is no evidence of funds allocated to this two schemes directly uplifting the conditions of the poor. There is no merit in claiming bad administration and hence leakage of funds from the schemes and hence stating that a universal basic income is more fruitful.

Firstly, it is unclear whether the Government will stop spending on Health. Health is always given a back seat when the pocket is tight as priority is always given to basics of food, clothing and shelter. Maybe, if the Government pulls out the Mid-day meal scheme, it will kill incentive of millions of students going to school. More so, it will lead to huge unemployment of people engaged in cooking food for the scheme, and render all the mega-kitchens as idle capacity. Secondly, if the Government spends anywhere between 3.5% to 10% of the GDP towards UBI emoluments, it loses out a lot of money on capital spending. More so, it means, that a large part of what the Government borrows, might as well be going towards unilateral transfers instead of creation of productive assets or jobs, making the debt all the more unsustainable.

The unemployment situation is not as bad as we think. India might be literate according to its given definition, but lacks education and hence, skills. Thus a very low proportion of people are in highly skilled jobs, or in jobs that are under direct threat under automation. Many jobs like daily wage/contract based jobs, domestic servants, peons are completely guarded against automation and are crucial to the functioning of an Indian household, office or factory. Such jobs can be threat only under specific circumstances that these people get educated or there is an overnight automation drive of these activities, both of which seem highly unlikely. The majority of population, that is engaged in agriculture is again safeguarded as automation in agriculture faces a different set of challenges altogether. What remain is a very small proportion of the working population, which work in the secondary and tertiary sectors, that too in big firms who can actually afford to employ automation on a large scale.

Simply, it is too soon for India to even think about implementing UBI. As a panel expert on a leading TV News Channel mentioned in a pre-budget discussion, it is all kite-flying done by the CEA in the Survey. Of course, nothing was spoken about UBI in the budget neither were any provisions made. Except for a pilot project in two villages of Madhya Pradesh and the Jammu and Kashmir Government announcing a UBI scheme on a trial basis only for construction workers registered in a particular association, UBI in India is nowhere to be seen. India has a long way to go as far as technology advancement, income inequality and economic development are concerned before UBI in the true sense of the term can or should be implemented.


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