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The larger canvas

Universal Basic Income – A public policy debate.

The larger canvas

There has been a new wave of global debate to move towards a fiscally neutral Universal Basic Income (UBI) by eliminating food and fuel subsidies. Earlier, Economic Survey – FY17 too had mooted a policy idea on UBI that ensures that every citizen has a right to meet their basic needs as a long-term solution to reduce poverty. In a large country with population of 1.3 billion, of which nearly 260 million are below poverty line, adapting UBI may be difficult but a policy debate assumes more significance. More particularly when India ranked 100th position in serious group of countries among 119 listed on Global Hunger Index (GHI) - 2017 according to the report by Washington based International Food Policy Research Institute (IFPRI).

This year, India slipped three ranks compared to 97 as per GHI – 2016. It trailing far below many of its neighboring countries such as China (29), Nepal (72), Myanmar (77), Sri Lanka (84) and Bangladesh (88). It is only better than Pakistan (106) and Afghanistan (107) among Asian Countries. In a welfare-oriented economy, subsidies are used as normal tools to provide relief to deprived sections of the society to protect them from poverty, hunger, and starvation. In the melee, some of the subsidies flow to affluent sections of the society too as it is difficult to parameterise subtle differences.
Subsidies to reduce poverty
In the context of social amelioration, the Central government's projected spending on subsidies has reached around 5 per cent, pegged at Rs 2,72,276 crore in its Union Budget – FY18. It increased from its revised estimates of Rs 2,60,485 crore in FY17. The total subsidies include food, fertiliser, petroleum and interest subsidy and many other informal subsidies. The ratio of subsidies to Gross Domestic Product (GDP) has declined from 14.9 per cent in FY12 to 12.7 per cent in FY18. The percentage of subsidy spent tend to drop with expansion of GDP base. In addition, some states may also provide a different set of concessions and subsidies from out of their budget to benefit the poor. Even differential pricing linked to free medical aid, concessional social schemes like insurance, pension, free education and many more are also social benefits. Even the recent spate of farm loan waivers is a sort of passing on the benefit to a specific target group of beneficiaries from out of state treasury. Such subsidies tantamount to doling out benefits to larger section of people keeping broad welfare orientation in mind. Providing subsidy is also an effort to reduce income inequalities and to avert incidence of poverty and hunger.
Routing subsidies
Over a period of time, a host of social security schemes has been articulated to channelise the subsidies. In the milieu of budgetary allocations to social welfare schemes, flag ship program – Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) got a high allocation of Rs. 48000 crores in FY17. It provides 100 days of wage - employment to a rural household whose adult members volunteer to do unskilled manual work in a financial year. The network of over five lakh fair price shops form part of Public Distribution System (PDS) that was started in 1970s to ensure nutritional security at affordable/subsidised prices to target group of households. It involves government expenditure of Rs. 73000 crores in FY12 stretching the benefits to 160 million households. It is known to be the largest public distribution network in the world.
In addition, the erstwhile planning commission had allocated Rs.90155 crores for Midday Meal scheme for school children during the 12th five year plan that ended on 31st March 2017. There is a host of Non-Government Organisations who contribute substantially to the cause. But these forms of subsidies are not yet effective and sufficient to pull the people out of poverty. But none of the subsidy schemes are pilfer-proof. With the thrust on digitisation, the best form is to credit beneficiary account directly. Ever since the implementation of Direct Benefit Transfer (DBT), the government has saved Rs.57000 crores besides reducing administrative expenses. Use of DBT needs to be further deepened.
International experience in UBI
Though a lot of experiments are going on globally in moving towards UBI to tackle poverty, unemployment, starvation, malnutrition etc., as of now no country has adopted it fully for all its citizens. But the concept of UBI is gaining currency in western parts of the world where the per capita income is scaling up. In a first of its kind of experiment to be carried out for two years, Finland is transferring Euro 560 per month to identified people who do not have to demonstrate that they actively seek work. It is basically to tackle unemployment. Some of the regionally carried pilot projects providing direct cash into beneficiaries' accounts could be seen in Alaska – USA, Ontario – Canada. Some limited geographies of Namibia, Brazil, and Netherland.
But most of the pilot projects are under testing. The reason for not adapting UBI could be the lack of policy consensus. Nevertheless, the UBI assumes much more significance as fears of more unemployment is worrying due to large-scale induction of technology, mechanisation, adoption of artificial intelligence and simulated robots substituting manpower. In agro-based economies per capital land holding, too, is dissipating.
Road ahead
In preparing the ground for such seminal change in providing subsidy to needy people, a lot of policy measures need to be put in place. Some of them could be (a) Total financial inclusion so that each adult is hooked to electronic banking network (b) Interoperability of bank accounts (c) Moving some of the existing subsidies to 'Direct cash transfer' to beneficiary accounts without manual intervention to eliminate leakage/misuse.(d) All stakeholders to come together on a mission mode to eliminate poverty and hunger.
While moving to UBI may be a daunting task, but there is nothing to stop from adapting its spirit to quell poverty. Moving from asset-based subsidy to cash-based subsidy to improve its effectiveness and end use. Let the policy debate on UBI be on the horizon to keep its spirit alive in the minds of policymakers.
(Dr. K. Srinivasa Raois Director, National Institute of Banking Studies and Corporate Management. The views expressed are strictly personal.)

K Srinivasa Rao

K Srinivasa Rao

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