Instead of a Universal Basic Income, what India needs is rationalization of subsidies, better targeting, and operational efficiency. Comment. (250 Words)

Mentors Comment:
UBI is not a new concept in Indian history and before Economic Survey pondered about it, erstwhile Planning Commission had already discussed the idea couple of decades ago. Simply put, the question asks about the rationale behind UBI and doing away from subsidies. Whether it is good for India? If not then what are the reasons for it? You can find all this in the Eco Survey chapter on UBI.

Start with introducing the concept of UBI in the intro. Keep it brief and simple.

Then discuss the rationale behind such move and how UBI can help India in reducing poverty. The key arguments that are needed to be made here are against the performance of various subsidy schemes and their failure so far. Try to focus major part of this discussion on subsidies.

Next, discuss why UBI can be a challenge in India. Points here are simple like requirement of funds, lack of financial inclusion, fear of inflation and hike in wages in labor-intensive industries and political populism.

The main statement of the question will form your way forward. Instead of UBI, we need better targeting of subsidies and stop leakages. We need efficient DBT for all subsidy based schemes. We need investment in human capital for long term growth.

https://www.livemint.com/Opinion/bidfwF9soST3YKlwntYyHI/Universal-Basic-Income-is-not-feasible-for-India.html

Answer:

Economic Survey (16-17) advocated for the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty. UBI is a periodic cash payment unconditionally delivered to all on an individual basis. It is not an entitlement but a right by virtue of being a citizen of a country. 

Need of UBI:

  • Eco survey suggested that UBI will be a more efficient way to help the poor by providing them resources directly. 
  • UBI is seen by many as an alternative to the existing system of subsidies, which is often associated with systemic inefficiencies.
  • Misallocation is due to administrative incapacity and inefficient delivery. 
  • Exclusion is a natural consequence of misallocation and leakages are due to big and complex delivery system. 
  • UBI being delivered universally in bank account would address all the three problems. 
  • It excludes errors in identifying the intended beneficiaries, which is a common problem in targeted welfare schemes.
  • UBI would give individuals freedom to spend the money in a way they choose. 
  • UBI would be a sort of an insurance against unemployment and hence helps in reducing poverty.
  • Because of its universal character, there is no need to identify the beneficiaries. 

Challenges for UBI in India:

  • The biggest issue is that India doesn’t have the fiscal capacity to implement UBI.
  • Given the large population size, the fiscal burden on government would be high. 
  • There is no guarantee that the additional income will be spent on education, health etc. There are chances that the money will be spent on ‘temptation goods’ such as alcohol, tobacco, drugs etc.
  • Also, as Economic Survey 2016-17 noted, once implemented, it may become difficult for the government to wind up a UBI in the case of failure.
  • If the UBI is funded by higher taxes, especially by the indirect taxes, it will result in inflation. 
  • This, in turn, will reduce the purchasing power of the people and lowers the value of the amount transferred.
  • A guaranteed minimum income might reduce the availability of workers in some sectors which are necessary but unattractive and raise the wages of such works. 
  • For example, the wages of agriculture labour might increase due to non-availability of workers willing to work in others’ farm.
  • Higher wages without a commensurate increase in productivity will affect India’s competitiveness.
  • There are only 20 ATMs for every one lakh adult population. Nearly one-third of the Indian adults remain unbanked. 
  • With such a state of financial service infrastructure and financial inclusion, it would be difficult for the people to access their benefits.
  • One of the major problem for UBI will be political populism where government in power would want to increase the amount of UBI or try to bring back subsidies in some form or the other.

Way Forward:

UBI alone is not sufficient for the overall upliftment of poor. Distinct sets of reforms are needed:

  • In India’s context the most important benefit would be in terms of addressing misallocation, exclusion and leakages which schemes run by government to root out poverty and inequality. 
  • Government needs to move to cash transfers at an accelerated pace with the use of JAM.
  • Government should work on reducing non-merit subsidies, but the gains should be used to increase capital spending, which will help boost growth in the medium-to-long term.
  • Broad-based economic reforms are needed that would strengthen entrepreneurship, remove barriers to job creation, and increase the returns to human capital investments by the poor.
  • This will help reduce costs and spare resources for capital spending to augment growth
  • As history has shown, the best way to pull people out of poverty is sustained higher growth 

One of the major criticisms of poverty alleviation programs is significant leakages. UBI is seen as a more efficient alternative. Though UBI has many advantages, there are many practical challenges too. The idea should be to save costs with better targeting. This will help create the necessary conditions for higher growth which will decisively lift people out of poverty. As ES stated, UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion. 

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