The Covid-19 crisis and the case for UBI

DAYS AFTER THE COMMENCEMENT OF a 21-day lockdown on March 25 to contain the spread of Covid-19, India woke up to poignant scenes of migrant labourers—who make up nearly 100 million of India’s workforce—returning to their native places in nearby states in the thousands. Many were doing the journey on foot, as transport services were suspended. They had decided to leave as work had dried up after almost all economic activity had come to a standstill. Without means to wait out the lockdown period including money to pay rent, they feared the worst if they stayed. Sadly, some never made it home.

The economic downturn caused by Covid-19 across the world and the resulting mass unemployment have put the focus on universal basic income or UBI—an unconditional guaranteed stipend from the government to the people. Economists believe it can provide some relief in the post-Covid-19 world and dignity to millions living in abject poverty.

“The plight of the vulnerable population in India is very serious. It just makes logical sense. If you do not have a salary flow, and if you do not have accumulated savings, and if for one reason or another you cannot access the PDS [public distribution system], what will you do?” asks Maitreesh Ghatak, professor of economics, London School of Economics. In India, the International Labour Organization estimates that about 400 million workers in the informal economy are at risk of falling deeper into poverty due to the pandemic. India has also been named as one of the most vulnerable countries to climate change. The country can lose as much as 5.8% of its working hours or 34 million full-time jobs from heat stress by 2050, says German think tank Germanwatch in its report, Global Climate Risk Index 2020.

UBI is not a new idea. First proposed in Thomas More’s Utopia in 1516, it has been advocated in one form or another by many thinkers and leaders throughout history such as Thomas Paine, Napoleon, and Martin Luther King. Proponents in the present time include Microsoft’s Bill Gates, Facebook founder Mark Zuckerberg, and Tesla’s Elon Musk. 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 ineffective. However, its fiercest critics say free money will make people not want to work.

The conversation has gathered steam around the world now with the number of Covid-19 cases crossing 2.5 million and 178,686 deaths (as of April 24). In fact, in his Easter letter to leaders, Pope Francis made a case for it. “It would ensure and concretely achieve the ideal, at once so human and so Christian, of no worker without rights,” he said. In India, Deepanshu Mohan, associate professor and director, Centre for New Economics Studies, Jindal School of International Affairs, O.P. Jindal Global University, says labourers across the board—daily-wage workers, factory workers, female workers on flexible contracts, the agricultural landless labour class, and “floating migrants” who move seasonally with cattle that is used for ploughing the fields across states, and sex workers—will be severely impacted. “Right now, what you can see is a shock that has affected all of them. It’s a shock that can multiply by three or four times of what demonetisation did.”

HE SAYS SOME OF THESE MIGRANTS are not a part of the Census, while some have been left stranded in cities. While state governments and civil society are trying to provide food and shelter, it is not a sustainable measure. For example, what happens once the lockdown is lifted? Will labourers have to move out of government-provided shelters? Or, will they get their jobs back? Also, in the likelihood of food inflation as the supply gets disrupted and the harvesting of the rabi crop becomes a concern because of labour shortage and logistics snags, the poor will need money to get through the next few months. To be sure, the Indian government has announced a relief package of ₹1.7 lakh crore for those most affected by the Covid-19 lockdown: ₹500 to be paid directly to women with Jan Dhan accounts; raising the daily wage under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to ₹202 from ₹182; transferring ₹2,000 each under the PM-KISAN scheme to 86.9 million farmers; and free ration of rice, pulses, and cooking gas. In a crisis, a combination of cash and essential food items is a good solution. But is it enough?

Economist and activist Jean Dreze says the government has humongous and growing foodgrain stocks, which should be released on a much larger scale for emergency distribution. “Cash transfers should be scaled up, especially for pensioners who are the most vulnerable at this time. The state governments, especially the poorer ones, also need budgetary support for other relief measures such as healthcare. The capacity to raise extra resources quickly lies primarily with the central government. It must do much more to help the states,” he says.

Dreze, however, believes that India should not rush into adopting UBI. An emergency UBI for purposes of disaster relief is not feasible because the system is not in place and cannot be put in place in a hurry. “After the crisis is over, there will certainly be a case for stronger social security measures of a permanent nature. Steps towards UBI could be part of these measures, but I am sceptical of the claim that UBI can be achieved quickly and replace other foundational programmes such as PDS and the employment guarantee Act.”

TO FIGHT THE PANDEMIC AND its repercussions, countries around the world have taken measures to transfer cash to citizens in need. Canada, for instance, said its citizens who are out of work because of the pandemic will be eligible for up to C$2,000 ($1,399) for four months. The U.S. has approved a stimulus package worth nearly $2 trillion and plans to send direct payments to citizens earning up to $75,000 a year. So, would the effect of an event like this—which can recur as the world faces challenges of climate change, food insecurity, inequitable distribution of wealth, and a rising population—be easier to bear if people have money in their pockets? Or would a stronger PDS do?

Ghatak says that this is a good time for the government to consider UBI. “You can’t supply everything through PDS. There are more perishable things, which are essential for subsistence. So, I would say that this is a good opportunity for us to realise that there is a core complementarity between cash and in-kind transfers [goods and services which recipients get for free or at lower rates],” he says.

In a paper last year, Ghatak and Karthik Muralidharan, professor of economics at the University of California, San Diego, argue that in India providing income support should be seen as a complement to public services and not a substitute. They noted that there were several advantages to cash transfers including direct reduction of poverty; limited administrative costs of targeting and risks of inclusion and exclusion errors; and lower leakage of benefits by reducing intermediaries. “Over time, once the state shows that it can credibly reach the poorest through income transfers, it can open up a set of policy options whereby the poor can choose between status quo public services and its equivalent cash,” they wrote.

This story was originally published in the May edition of the magazine.