Context: During a recent interaction organised by the Confederation of Indian Industry (CII), V Anantha Nageswaran, the Chief Economic Advisor, voiced his opposition to the idea of implementing Universal Basic Income (UBI) in India.
He expressed concerns about the potential creation of “perverse incentives” that could discourage individuals from actively seeking income-generating opportunities. Consequently, he believes that UBI should not be a priority in the near future.
The Chief Economic Advisor presented the following arguments opposing the implementation of Universal Basic Income:
- Developed countries, due to limited scope for significant economic growth and income generation, have established social security systems to provide income support for the unemployed and those unable to support themselves.
- Developing nations, like India, are thought to have considerable potential for economic expansion, employment promotion, and creation of income opportunities, making a social security net unnecessary.
- Providing regular income support by the Government may disincentivise individuals from making efforts to find work.
Nevertheless, these arguments warrant thorough examination when considering the ground reality of India and the shortcomings in the current social support programs offered by the Central and state governments.
The Case For Unconditional Basic Income
While India does have great potential for growth and employment, it doesn’t mean everyone will find work or escape poverty. Even with rapid economic growth, many people remain jobless and poor. So, the need for government assistance remains.
Understanding the current economic climate requires awareness of the drawbacks inherent in our existing welfare schemes. These shortcomings provide a unique opportunity to consider an innovative approach – the Unconditional Basic Income (UBI) system.
Current Welfare Schemes And Their Drawbacks
- The existing food security scheme faces significant leakages, leading to massive losses and potential corruption.
- The fertiliser subsidy, costing Rs 255,000 crore in 2022-23, is not limited to the poor farmers. It also benefits affluent ones and even contributes to smuggling and inefficiency.
- A significant portion (24%) of the fertiliser subsidy ends up with large/rich farmers and 41% is diverted to chemical factories.
- Subsidised electricity tariffs for farmers are causing overuse of water and depleting groundwater sources.
- Credit subsidies are often monopolised by large farmers, leaving small-scale farmers at a disadvantage.
- Many state-level schemes, like free bus rides for women, may bring electoral advantages but at a cost to the overall economy.
- These points underscore the pressing need for a more efficient, equitable solution, such as the Unconditional Basic Income (UBI) system.
How To Determine Appropriate Level Of Universal Basic Income (UBI) In India
The main emphasis of UBI should be directed towards individuals living below the poverty line. Numerous estimates exist regarding the number of impoverished individuals in India.
Main points to consider:
- With an existing budget of Rs 562,000 crore allocated for subsidies, these funds could be repurposed to support UBI.
- Assuming an average family size of five, this would provide approximately Rs 112,400 per annum or approximately Rs 9,400 a month to each of the 50 million impoverished families.
- It’s crucial for the UBI programme to have dynamic beneficiaries; those who escape poverty are removed from the programme, while those who fall into it are included.
- The ultimate goal is not perpetual support but creating conditions where all have opportunities to increase their income. In the long run, the aim is to reach a state where UBI is no longer needed.
(This Economy Note is based on the article “Rethinking Universal Basic Income and subsidies”, published in the Deccan Herald.)