[op-ed snap] Universal Basic Income can be funded by reducing subsidies to the rich

Note4students

Mains Paper 3: Economy | Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

From UPSC perspective, the following things are important:

Prelims level: Basics aspects of Universal basic income.

Mains level: The news-card analyses the issues and challenges in the implementation of universal basic income, in a brief manner.


Context

  • There are reports that the ruling party in Sikkim has announced Universal Basic Income Supplement (UBIS) in its election manifesto, and, more intriguingly, the Centre is considering such a measure “for people below the Poverty Line”.
  • The latter is a contradiction in terms since UBIS is an unconditional grant to all citizens, not just to the poor — that’s what “universal” means.

Background

  • Many people, who are much above the official poverty line, suffer from variety of insecurities.
  • For instance, farmers face weather and market risks but non-farmers also face several kinds of risks, including in their jobs, often in the informal sector, where some of them are refugees from agrarian and ecological distress or are victims of the recent disaster of demonetisation.

Case for UBIS

  • UBIS avoids the problem of deciphering who is poor and who is not, which is an intricate problem in India.
  • The India Human Development Survey found that in 2011-12 about half of the officially poor did not have the BPL card, while about one-third of the non-poor had it.
  • UBS is more a part of a citizen’s right to minimum economic security, a right which many countries recognise, but so far India does not, even though it should easily fall under the Supreme Court’s interpretation of the “right to life” in the Constitution.
  • Should the government give money to the riches like Ambanis as well? The answer could be a yes, as citizens they are entitled to it, just as they have the right to get police protection, even though they can afford their own protection.

How to fund UBIS?

  • Experts have suggested funding it from reducing some of the subsidies that are at present enjoyed mainly by the better-off, also taking a bit from the various tax concessions mostly to business (called “revenues foregone” in the Central Budget), and taxing the currently exempt wealth, inheritance, and long-term capital gains, and collecting more taxes from the currently under-assessed and under-taxed property values.
  • Only a quarter of the 10 per cent of GDP thus potentially mobilisable could go to UBIS; the rest can be spent on infrastructure, health and education.
  • This allows roughly a grant of about Rs 16,000 to each household.
  • If, to start with, it is given only to women, it’ll halve the cost (about Rs 2.1 trillion, at 1.25 per cent of the GDP).
  • The special treatment to women is recognition of the hard work most of them do for their households, and outside.
  • It is also a means to raise their (currently low) autonomy and status within the Indian family.

Challenges

  • The better-off (businessmen, large farmers, the salaried class) will not easily give up on the subsidies they have enjoyed all these years or pay substantially more taxes.
  • Experts are generally against the idea as UBIS merely adds significantly to the fiscal deficit or is funded by scaling down some of the current major anti-poverty programmes.
  • Since UBIS is to be given to the rich and the middle classes as well, it can be expensive.
  • According to some experts, a significant UBIS with a simultaneous increase in the taxes on the rich will help macro-economic stability, apart from assuaging the poor who will face some of the price rise in commodities or services, when subsidies are withdrawn.
  • For example, the price of urea will rise for all farmers, if the fertiliser subsidy is curtailed, even though most of the subsidy goes to large farmers and factories.
  • It is also important to keep in mind that if the declared UBIS amount is too small, only serving as a rhetorical token before elections, people will see through it as another electoral “jumla”.

Some practicalities of UBIS any policy-maker has to consider

  • How do you reach everybody in India when many people still do not have bank accounts or access to banking agents?
  • Aadhaar or some other form of identification will be necessary, but the horror stories one has heard about the poor being denied PDS because of the lack of Aadhaar authentication make one wary of bureaucratic callousness in this respect.
  • UBIS needs to be transparently linked right from the beginning to some cost of living index — this is particularly important because of the callous way Indian governments have let their contribution under the National Old Age Pensions Scheme stagnate at a measly Rs 200 per month per pensioner for the last 12 years.
  • UBIS could be different for adults and children, but one probably should not go that way because in the absence of proper age records it may give an opportunity to some corrupt officials.
  • How should the grant money be allocated between the Centre and the states? The state governments have to be part of the active negotiations.
  • Different states may have different fiscal capacities and also different kinds of logistical capabilities in reaching out to people particularly in remote areas. In the estimate for subsidies to the better-off, state-level subsidies have been included.
  • In the beginning, however, the central government may have to bear most of the cost, and the Finance Commission may have to work out the eventual modalities of allocation of the burden between the Centre and the states.

Way Forward

  • UBIS is a policy issue that requires government’s serious attention and deliberation.
  • It should not be considered as something to woo voters just before elections.
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