Mains Paper 3: Economy | Inclusive growth & issues arising from it.
From UPSC perspective, the following things are important:
Prelims level: UBI
Mains level: Debate surrounding Universal Basic Income
- The idea of a universal basic income (UBI) is gaining ground globally.
- It has supporters among the political left and right, and among proponents as well as opponents of the free-market economy.
Working of the UBI
- The UBI is neither an antidote to the vagaries of market forces nor a substitute for basic public services, especially health and education.
- Besides, there is no need to transfer money to middle- and high-income earners as well as large landowners.
- However, there is a strong case for direct income transfers to some groups: landless labourers, agricultural workers and marginal farmers who suffer from multi-dimensional poverty.
- These groups have not benefited from economic growth.
- They were and still are the poorest Indians. Various welfare schemes have also failed to bring them out of penury.
- A case in point is the access to institutional credit issued by banks and cooperative societies.
- According to NSSO data from the 70th round, institutional credits account for less than 15% of the total borrowing by landless agricultural workers; the figure for marginal and small farmers is only 30%.
- These groups have to borrow from moneylenders and adhatiyas at exorbitant interest rates ranging from 24 to 60%.
- As a result, they do not stand to benefit much from the interest rate subsidy for the agriculture sector. Likewise, the benefits of subsidised fertilizers and power are enjoyed largely by big farmers.
- In urban areas, contract workers and those in the informal sector face a similar problem.
- A UBI requires the government to pay every citizen a fixed amount of money on a regular basis and without any conditionalities.
- Crucial to the appeal for such a demand for a UBI — is that millions of people remain unemployed and are extremely poor, despite rapid economic growth in the last three decades.
- The government has already unfolded a limited version of the UBI in the form of the PM Kisan Samman Nidhi Yojana (PM-KISAN) which promises ₹6,000 per annum to farmers who own less than 2 hectares of land.
How UBI will work?
- An income support of, say ₹15,000 per annum can be a good supplement to their livelihoods — an amount worth more than a third of the average consumption of the poorest 25% households, and more than a fourth of the annual income of marginal farmers.
- This additional income can reduce the incidence of indebtedness among marginal farmers, thereby helping them escape moneylenders and adhatiyas.
- Besides, it can go a long way in helping the poor to make ends meet.
- At high levels of impoverishment, even a small income supplement can improve nutrient intake, and increase enrolment and school attendance for students coming from poor households.
- In other words, income transfers to the poor will lead to improved health and educational outcomes, which in turn would lead to a more productive workforce.
- It seems to be a good idea to transfer the money into the bank accounts of women of the beneficiary households.
- Women tend to spend more of their income on health and the education of children.
- The effect of an income transfer scheme on unemployment is a moot point. In principle, cash transfers can result in withdrawal of beneficiaries from the labour force.
- The income support suggested above is not too large to discourage beneficiaries from seeking work.
- In fact, it can promote employment and economic activities. Moreover, such a scheme will have three immediate benefits.
- One, it will help bring a large number of households out of the poverty trap or prevent them from falling into it in the event of exigencies such as illness.
- Two, it will reduce income inequalities.
- Three, since the poor spend most of their income, a boost in their income will increase demand and promote economic activities in rural areas.
Income Transfer: A better Alternative?
- Nonetheless, an income transfer scheme cannot be a substitute for universal basic services.
- The direct income support to the poor will deliver the benefits mentioned only if it comes on top of public services such as primary health and education.
- This means that direct transfers should not be at the expense of public services for primary health and education.
- If anything, budgetary allocation for these services should be raised significantly.
- Programmes such as the MGNREGS should also stay. With direct income support, the demand for the programmes will come down naturally.
- However, in the interim, it will serve to screen the poorest in the country and give them a crucial safety net.
- The Socio-Economic and Caste Census (SECC) 2011 can be used to identify the neediest.
- Groups suffering from multidimensional poverty such as the destitute, the shelter-less, manual scavengers, tribal groups, and former bonded labourers are automatically included.
- The dataset includes more than six crore landless labourers.
- It also includes many small farmers who face deprivation criteria such as families without any bread-earning adult member, and those without a pucca house.
- The other needy group, small farmers, missing from the SECC can be identified using the dataset from the Agriculture Census of 2015-16.
- The Aadhaar identity can be used to rule out duplications and update the list of eligible households.
Limited corpus: The only hurdle
- As an approximation, the number of eligible households is 10 crore.
- That is, even in its basic form, the scheme will require approximately ₹1.5 lakh crore per annum.
- The PM-KISAN Yojana can be aligned to meet a part of the cost.
- Moreover, the tax kitty can be expanded by reintroducing wealth tax.
- Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment.
- Therefore, the cost will have to be shared by States. States such as Telangana and Odisha are already providing direct income support to their farmers.