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Can we afford free money for all?

To implement UBI, the government will have to cut many subsidies. How do we ensure that there is no DeMo repeat?

Published: 15th July 2017 04:00 AM  |   Last Updated: 15th July 2017 12:04 AM   |  A+A-

It is said that no power can stop an idea whose time has come. The idea that is exciting economists globally these days is Universal Basic Income (UBI); a whole session was devoted to it at Davos. The concept of UBI is simple: a regular, periodic payment to all citizens by the government, without any conditions on income or employment. Its beauty is its simplicity requiring no complex bureaucracy for its implementation.

The idea is not new. It was first mooted by Thomas More in his 1516 book Utopia and found favour with the likes of Thomas Paine, John Stuart Mill, Bertrand Russell, Martin Luther King Jr. and Milton Friedman. The beauty of the concept is that it is politically neutral: it appeals both to the Right and the Left. The latter consider it a tool of social justice postulated on the belief that public wealth is created by all peoples over generations, and so should be distributed equitably; it is also a means to tackle poverty and unemployment. The Right sees it as a more efficient way to utilise funds for welfare, compared to the current regime of huge, untargeted and leaking subsidies.

By no means is there unanimity, however: Both sides have their criticisms too. Some on the Left feel UBI is an excuse for the government to opt out of its responsibility for social intervention in key sectors such as health and education, by simply handing out a monthly dole. Some on the Right oppose it saying it will promote indolence and provide a disincentive for seeking employment. Whatever be the merits, the fact is governments are willing to give it a try, even though the Swiss rejected it in a referendum last year. Pilot programmes have been introduced in Finland, Canada, the Netherlands and the US.

In India too it has entered public discourse via the views of Chief Economic Adviser Arvind Subramanian contained in this year’s Economic Survey: He appears to support it, though not immediately, perhaps.
What is resurrecting this 500-year-old idea is undoubtedly the widening income and wealth disparities after globalisation and the looming spectre of technology-driven unemployment. The West has already started shedding millions of jobs because of automation, robotics and artificial intelligence, and even tech pioneers like Bill Gates and Elon Musk have warned things are going to get worse. India’s position is even more critical, given our historical levels of poverty, mind-boggling inequity and already-existing massive unemployment. The country is simply not able to create the minimum 10 million new jobs needed every year.

The unemployment rate in 2016 was 7.97 per cent, a hopeless underestimation since it assumes 50 per cent of the populace is engaged in agriculture; in fact, at least 75 per cent of agriculturists are significantly underemployed but remain there due to lack of options. The even more worrying thing is that the rate of job creation over the last three years has been falling: 4.97 lakh jobs created in 2014 to 1.35 lakh in 2015.

It would be worse now, after demonetisation, the beef ban, the liquor-on-highways ban and GST. Technology too is beginning to bite: the IT sector alone is expected to shed 6,00,000 jobs in the next three years. PRAHAR, a non-profit, has predicted we are likely to lose seven million jobs by 2050; the population by then would have grown by 600 million. The social effects of such large-scale unemployment and its fallout on poverty and the country’s stability is the biggest argument for introducing UBI.

The main argument against UBI is: Can we afford it? Vijay Joshi, an internationally renowned economist from Oxford has calculated that if a UBI payment of `17,500 were to be paid to each household annually it would cost 3.5 per cent of India’s GDP. As against this just the non-merit subsidies amount to 7.7 per cent of GDP. On paper, therefore, it is affordable and still leaves the merit subsidies in vital areas such as education, health, PDS and nutrition untouched. But perhaps a case can be made out to subsume PDS in UBI as it is perhaps the most wasteful of subsidies and also involves huge costs in procurement, storage and distribution.

But math apart, there are other concerns that militate against UBI: Should the state withdraw so completely and leave the poor to market forces? Will this not lead to the withering away of the welfare state? Is India logistically prepared for such a huge exercise to ensure there is no repeat of note ban’s travails?
That last question at least can be answered somewhat confidently. There are now about 350 million Jan Dhan accounts and Aadhaar has reached 1.12 billion people. Linking of bank accounts and Aadhaar has been made compulsory by December, so the basic system for remitting UBI payments to beneficiaries is more or less available, theoretically.

In practice, there may be grey areas that can cause untold misery, especially in villages and to the marginalised: lack of bank branches in villages, poor internet connectivity, inoperative Jan Dhan accounts, lack of awareness of banking, a huge migratory population. Further, as Joshi has pointed out, the removal of subsidies itself is a tricky exercise; without proper sequencing it can cause havoc and destitution. We cannot afford the disorganised trauma of demonetisation again.

The ideal, and sensible, way to go about it is to launch a few pilot projects in carefully selected areas (blocks rather than districts) that represent the different profiles—social, economic, demographic, infrastructural— that constitute the smorgasbord identity of our country, and then analyse how well it caters to each. The government should give up its distrust of NGOs and learn from their experience. SEWA Bharat, an NGO, has in fact been implementing two UBI schemes in Madhya Pradesh, with assistance from UNICEF, for some years and its experience has been fascinating. The government can get a lot of valuable inputs from SEWA. What it should not do is another surgical strike at the midnight hour.

Avay Shukla

served in the IAS for 35 years and retired as Additional Chief Secretary of Himachal Pradesh

Email: avayshukla@gmail.com



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