Govt doesn’t have fiscal capacity to implement anything close to a true UBI

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Published: March 6, 2019 1:18:54 AM

Neither Centre nor states have fiscal capacity to implement anything close to a true UBI.

There is still some work to be done as biometric identification becomes contentious in some cases and financial inclusion suffers from last-mile connectivity, i.e. beneficiaries are physically at a distance from banks or ATMs.

Universal basic income (UBI) may have gained momentum in the area of social security, but is yet to convince the country how sustainable it is in terms of securing a reasonable income for the needy. The question is: What is new in this initiative that wasn’t there in other social initiatives of the past government and has not been fulfilled yet? UBI is possibly a paradigm shift that aims to bring in social justice and economic security. It focuses on the principle that a just society needs to guarantee to each individual a minimum income they can count on, and that provides the necessary material foundation for a life with access to basic goods and dignity. UBI, like many other rights, is unconditional and universal, hence requires that every person should have a right to a basic income to cover their needs, just by virtue of being a citizen. Such overwhelming objective apparently looks difficult to achieve in a short period of time, but what can be argued is that a fresh, long-term initiative needs to be worked out and implemented.

UBI, in a narrow sense, aims to provide direct cash transfer to households, which should guarantee them a minimum standard of living. This means the government transfers a sum of money at regular intervals to all citizens. The idea of providing basic minimum income was first mooted by Jawaharlal Nehru in 1938, even before Independence. But the success of anti-poverty schemes has been mixed—although some have experienced marked improvement in key areas, implementation has been afflicted by corruption, leakages and also due to the exclusion of deserving persons. For example, a major employment guarantee scheme in 2011-12 did not reach 40-65% of the poorest. It is observed that, in practice, a UBI should target low-income classes and the poor in the range of 60-75% of the population. Providing universal income is a constructive alternative because it removes the need for identifying and targeting correct beneficiaries. This is becoming easier with technology, which ensures biometric identification of the exact beneficiary. This nearly covers all Indians. Financial inclusion and mobile penetration have created the scope for directly transferring cash to household bank accounts. There is still some work to be done as biometric identification becomes contentious in some cases and financial inclusion suffers from last-mile connectivity, i.e. beneficiaries are physically at a distance from banks or ATMs.

The translation of this idea into an actionable policy requires a strong political will. An opportunity does exist with the unfolding of agrarian distress. Respective state governments need to address such concerns. However, for the last couple of years, agricultural prices received by farmers have declined sharply, shrinking their incomes. The results of such agrarian distress was well-pronounced in the last three state elections where the ruling party lost in all states.
Telangana took the plunge by providing cash transfers to land-owning farmers. Odisha extended this scheme to agricultural labourers and tenants. The announcement by the Congress party to provide a minimum income to the poor has become a key part of its manifesto for the general elections. The Interim Budget proposed a cash transfer of `6,000 per year to all small and marginal farmers up to a landowning limit of two hectares.

None of these schemes really aim at creating a UBI, because they all target a fraction of the population. Many are mere announcements, with implementation yet to be take place. Pronouncements have to contend with budget constraints—neither the Centre nor states have fiscal capacity to implement anything close to a true UBI. In addition, implementation of a true UBI seems impractical as incessant agricultural subsidies for capital, power, fertiliser and water are simultaneously carried out, making it a huge burden on the government to think of an alternative like UBI. And removing these subsidies is a real political challenge. Hence, to expect UBI to happen in the near future looks remote.

A reasonably sound idea could be that UBI needs to be financed and implemented jointly by the Centre and states. Competition between states can ensure that the rewarding of tough political choices to implement a UBI in one area will be imitated by others. What works for UBI is that, if properly targeted, it can eliminate corruption and leakage of funds. It can provides low-income citizens with spendable money and avoid systemic distortions that farm loan waivers impose. Above all, it becomes politically correct.

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