While the government is being egged on to try a version of Universal Basic Income (UBI), the exercise only works if all existing subsidies are ended.
While the government is being egged on to try a version of Universal Basic Income (UBI), the exercise only works if all existing subsidies are ended. If not, UBI becomes just another expensive subsidy, much like the UPA’s Food Security Act. How expensive depends on what version of UBI is used, though all suggest a modified one where, not all, but a large section of the population gets it. Vijay Joshi talks of Rs 3,500 per person per year (at 2014-15 prices) to three-fourths of the population, Surjit Bhalla talks of Rs 1,000 per month to a fifth of the population—both will cost roughly 3% of GDP, a number that is easily funded from the budget which, for just the explicit subsidies, is Rs 2.5 lakh crore this year.
At a time when the government has made progress on Aadhaar-based direct benefit transfers (DBT) or in linking Aadhaar numbers with the beneficiaries to eliminate the 50%+ theft levels in various welfare schemes, it is fair to ask why UBI should be tried, and also whether pure dole will make people unwilling to work. Since the UBI is low, the chances of it distorting incentives to work are limited. As for its benefits, two pilot studies over several villages, by Sewa Bharat and Unicef, gave cash to villages for 12 to 17 months in 2012-13 and studied the impact of this versus control villages where no cash was distributed. In villages where unconditional cash transfers were made, savings level rose; the money received was often spent on making improvements to houses or in constructing new houses. In the case of SCs and STs, where the level of deprivation is higher, more of the cash was used to buy food, but once this need was met, the money got spent on education or on medicines; school attendance rose 29% in the cash-villages versus 14% for the non-cash ones, and 49% of children in cash-villages went to private schools versus 30% for the non-cash ones.
You may also like to watch this video
More than the money, UBI is a radically different approach since people are free to make their choices instead of the government, through subsidies, telling them how much of what to eat or what to cultivate with what fertiliser. By virtue of eliminating subsidies, such as on inefficiently procuring food by FCI or running government-schools, UBI means free markets. Even a government that surprised everyone by removing 86% of currency may not want such a radical solution since citizens may be more inclined to vote its way if there are several schemes that reinforce its benevolence from time to time instead of just one monthly cash transfer.