Can India afford to ignore UBI?

“No need for greed or hunger, a brotherhood of man, Imagine all the people sharing all the world,” sang John Lennon decades ago. Realistically, it’s easy if everyone had the money to buy food to satisfy their hunger, and everybody was afforded their share in the world.

Enter UBI or universal basic income, a concept that many agree is good. With Budget 2018 just around the corner, it’s worth looking at whether the finance minister will make any move towards UBI in what is probably going to be a populist Budget.

A case was made for it in the Economic Survey of 2016-17, when a quasi UBI was mooted. It suggested targeting about 75% of the population and starting out with specific groups. The survey also suggested phasing out welfare schemes that are seen ineffective.

The possibility of UBI appearing in this budget seem minimal but the conversation around it is building. “I think the big plus of UBI is that it is straightforward. As a concept, there don’t have to be 10 steps; you can just send everybody a cheque, every person of a certain age and every woman a cheque, and you don’t have to worry about getting the targeting right,” says Abhijit Banerjee, MIT economist and co-founder of the Abdul Latif Jameel Poverty Action Lab.

But Banerjee admits that it’s a concept that has not really been tested. Therein lies the problem with UBI. While there are small experiments going on in several countries, India hasn’t yet spoken of it on any scale. Finland, for instance, announced UBI for two thousand residents, as a socio-economic experiment. The country will give these people 560 Euros a month for two years, while studying how it affects their lives.

A scheme of those proportions in India will be the biggest socio-economic experiment in history. “The "I" in UBI suggests a fixed income payable to all. The problem is (a) developing countries are too poor to pay out anything sustainable now, and (b) it is almost impossible to compare countries like Finland or India on the basis of how much each is paying out. India’s basic income (if ever adopted) would surely be smaller,” says Debraj Ray, professor of economics, New York University.

Although, Ray suggests, percentages can be compared - what % of GNP is India and Finland paying out? That is a far more comparable estimate and it is something that can be written down as a target, just as the Millennium goals were laid down at the United Nations. "A commitment to a percentage means that a huge political battle won't have to be fought each time you want to adjust the UBI as the country grows," he says.

Maitreesh Ghatak, Professor of Economics at the London School of Economics, says that the opposition to UBI comes from the worry that the government would simply wash its hands off other forms of distribution that the poor actually benefit from.

“Clearly expenditures on health and education are investments in human capital, and affect the growth potential of the economy, similar to investments in infrastructure. These should be delinked from any anti-poverty programmes, whether UBI or some other form of conditional or in-kind transfer, which provide short-run relief to the poor as opposed to a long-term solution,” he says.

The biggest problem in all of this is – where will the money come from. Unless fiscal space is sought for it, the whole conversation is pointless. Analysts are already expecting India to breach its fiscal deficit target this year. And the country is definitely not in a state to shoulder additional responsibility on the balance sheet.

Ghatak says his calculations suggest that that if every adult was given exactly the amount of income that defines the poverty level, which is on average Rs 40 per day (Rs 32 in rural areas and Rs 47 in urban areas), every person would be assured of an income of around Rs 14,000 per year or Rs 1,200 per month.

“Assuming we give this sum to every adult (0.69 of the population), this would require a total expenditure of Rs 11,600 billion, which is 11% of the GDP. One can, of course, offer a lower amount per person that would be more affordable but there is clearly a trade-off between such a scheme being effective and affordable,” says Ghatak.

The other question to consider is whether UBI will eventually be able to address poverty and afford people basic means of sustenance. Development economist and activist Jean Dreze says India already has several schemes that can help to reduce extreme poverty, such as social security pensions and the Antyodaya programme. Unfortunately, they are starved of funds and attention.

“The central government’s contribution to old-age pensions has stayed at an abysmal Rs 200 per month since 2006, and two years ago, the central government tried to discontinue the Antyodaya programme. Similarly, little attention is paid to various means of preventing extreme accumulation of wealth,” says Drezé.

It is perhaps still early for India to consider UBI before ironing out the logistics and the fiscal space. To be able to determine an amount that will be enough to afford basic amenities, and to do so without the fiscal math falling to shambles, is difficult enough to not expect it any time soon.

But in all this one things remains true that the idea of a cash transfer gives people the agency, and the freedom to do what they want to do.

“When people have opportunity, they feel more secure about their lives they actually work harder and not less hard, if you give people 2000-3000 rupees, I don’t think they will retire on that. If anything, they will feel more empowered to go out and do more things,” says Banerjee.