Universal Basic Income- Cut out the subsidy

A basic income (also called unconditional basic income, Citizen's Income, basic income guarantee, universal basic income or universal demogrant) is a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.- Wikipedia
The Economic Survey presented in the Parliament last week had pitched the idea of a universal basic income (UBI).
The basic argument was that currently subsidies are untargeted. Both from various state as well as central subsidy plans, a lot of undeserving people above the poverty line also get the subsidies. In addition the final beneficiary may a time get only a fraction of the money actually paid to him. Thus instead of these subsidies, give them a basic income cheque. They can do some additional work through MNREGA or some more unorganised sector employment and earn a little more. It has to be targeted so that it reaches the poorest directly.
Now some questions come to my mind regarding UBI in India. As a tool of poverty alleviation, what specific benefits does a universal basic income have? What delivery mechanism could the government employ for this transfer? Should existing welfare schemes be discontinued to make way for a universal basic income?
Firstly, there is little question that unconditional cash transfers are a progressive policy instrument. As per surveys conducted in Madhya Pradesh and Delhi in 2010 households were given the choice of receiving Rs1,000 in lieu of subsidized food through the public distribution system (PDS). The study found that the fear that households would shift their spending away from nutritious foods was unfounded, and no concomitant increase in the consumption of alcohol was observed. Some more tests conducted in certain areas later had also yielded positive results. Other global studies on UBI have also found that they reduce poverty, encourage school attendance and use of medical services, improve savings, and benefit women’s decision-making power.
Secondly how will the state distribute basic income grants and verify delivery? The limit of India’s banking and digital payment networks are there. While the combination of a unique Aadhaar number linked to biometric data was expected to improve targeting for the PDS, news reports from various states are discouraging. Large numbers of beneficiaries have had to go without their entitlements as unreliable fingerprints, connectivity infrastructure and false rejection rates led to system failures. When the mechanism works, however, it can deliver outsize benefits—biometric smart cards reduced corruption and improved payment delivery in two expansive employment and pension transfer programmes in Andhra Pradesh.
Finally should & how politically feasible is universal basic income to replace the government’s flagship poverty programmes? While various surveys conducted across the country in rural areas in 2011 & 2012 found that more than half of all beneficiaries surveyed favoured receiving the in-kind transfer over cash a nationally representative household survey conducted last year found that about 53% of households preferred cash transfers in comparison to 29% in favour of in-kind foodgrain transfers. This change could partly be attributed to socio economic change/awareness and access to banking facilities including the government focus on direct transfer of subsidies & other benefits under certain central schemes. Another point is that India’s size and diversity warns against adopting a one-size-fits-all cash policy that risks leaving India’s poor with cash in hand but nowhere to spend it.

Mr Arun Jaitley in a post-budget interview said that Indian politics currently lacks the maturity to give up subsidies for the greater goal of a universal basic income. Thus as the debate on universal basic income evolves in India, it is imperative that policymakers deliberate upon the research on cash transfers, the administrative muscle, banking infrastructure and technology required to disburse the benefits. The Economic Survey has a great opportunity to expand the contours of the public debate on a universal basic income and address key knowledge and implementation gaps and come out with concrete steps going forward.

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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named 'The Tortoise' 

2 thoughts on “Universal Basic Income- Cut out the subsidy”

  1. I think the government has already been taking steps like Aadhar card/Biometric data/direct transfer of subsidies. Coverage is increasing. The main challenge will be more political- shifting from giving subsidies to giving direct cash.

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