A Universal Basic Income (UBI) will be an efficient substitute for a plethora of existing welfare schemes and subsidies, according to the annual Economic Survey.
In a chapter ‘Universal Basic Income: A Conversation With and Within the Mahatma,’ the Survey dwelt at length on the pros and cons of introducing UBI in India before concluding that it was “a powerful idea whose time even if not ripe for implementation is ripe for serious discussion.”
The report justified the introduction of UBI citing several reasons such as promoting social justice, reducing poverty and an unconditional cash transfer that lets the beneficiary decide how she uses the money and generating employment by promoting labour flexibility since it allows “individuals to have partial or calibrated engagements with the labour market without fear of losing benefits.”
It also said the move would bring in administrative efficiency as a direct cash transfer through a JAM (Jan Dhan-Aadhar-Mobile) platform would be more efficient compared to the “existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor.”
Pointing out that the Budget for 2016-17 had about 950 central sector and centrally–sponsored schemes (CSS) that accounted for about 5% of the GDP, the Survey suggested that “considerable gains could be achieved in terms of bureaucratic costs and time by replacing many of these with a UBI.”
Analysing the top six welfare programmes, including the public distribution system (PDS), Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and Mid Day Meal (MDM), the report said observed that all of them showed evidence of misallocation of resources due to whichas a result of which many of the poorest districts in the country remaineding under-funded while others gotreceived “more-than-proportional share of the spending.”
Noting that the biggest consequence of misallocation was exclusion of genuine beneficiaries, the report argued that by virtue of being ‘universal’, and therefore more inclusive, the ‘exclusion error’ in a UBI-based welfare model would reduce.
At the same time, it admitted that “in practice any program cannot strive for strict universality.”
Instead, it advocated a “target quasi-universality rate of 75%.” Computing on the basis of assumed consumption levels just above the poverty threshold, it estimated that an UBI in India would be in the range of between ₹7,620- ₹6,540 per capita per year, which would entail a cost of 4.9-4.2% of the GDP. This would be well within the ball park of 5% of the GDP, which is what existing centrally sponsored schemes cost the exchequer.
Anticipating implementation problems due to the political fall-out associated with the discontinuation of existing welfare schemes and subsidies to make way for a UBI program, the report laid down a set of guidelines for setting up the UBI.
These included opting for a reduced ‘universal’ quotient, approaching targeting from the point of view of excluding the non-poor (as opposed to the current paradigm of including the deserving), a ‘give-it-up scheme’ for the undeserving as was done in the case of LPG cylinders, and a self-targeting system with built-in opportunity costs wherein beneficiaries would have to regularly verify themselves in order to avail of their UBI.