Covid-19 second wave: Can India afford Universal Basic Income?

On May 5 last year, Dattatreya Hosabale, the No. 2 ranking leader of the RSS, held a video press conference for journalists of foreign media organisations. He sought to impress upon them the stoicism of migrants in their thousands trudging back home to their villages. “They were silently walking, peacefully walking. They did not create any mess. They did not indulge in any violence,” he said.

Hosabale painted a picture of a spiritually-evolved society that remained content even in the face of adversity. “They had to face all the miseries, difficulties, hardships, but they behaved,” he said. He admired the altruism of the people. “It shows that ordinary Indians who are generally spiritual minded…extended a helping hand to all the people to fulfil their daily needs.”

But the state cannot rely on the altruism of people, however generous they may be. It has an obligation to provide employment opportunities to every person so that they earn enough to buy basic needs and lead a life of dignity. The pandemic has worsened economic conditions. Last year the economy contracted by eight percent. The GDP of Rs 134 trillion (lakh crore) at inflation-adjusted prices was lower than the previous year’s value of Rs 145 trillion and was closer to the 2017-18 figure of Rs 132 trillion. Per capita GDP has contracted from Rs 108,649 in 2019-20 to Rs 98,928 last year.

Unequal society

We know that India is a very unequal society and averages conceal vast disparities. In January, the British charity Oxfam estimated the wealth of India’s 63 billionaires in 2019 at Rs 29 trillion or 14% of GDP (at current prices). Their wealth has increased since then even as the economy has shrunk. Those at the bottom of the economic and social heap would have become more impoverished. The trend of poverty declining from 70% at the time of Independence to about 22% in 2011-12 would have reversed.

This is a good time to revive talk of Universal Basic Income (UBI) because the avenues for employment have shrunk. According to the Centre for Monitoring Indian Economy (CMIE), which has been keeping a tab on employment continuously since 2016, 399 million people were employed between January and April this year, compared to 404 million during the same period in 2019. The 2020 period is not being compared because of the lockdown which was imposed towards the end of March and was strictly enforced till end of May. The unemployment rate at 6.87% and 6.83%, respectively, did not change much during the two periods. But given shrinking job opportunities women have withdrawn from the labour market. The share of women aged 15 and above who were willing to work and seeking employment fell from 11% in January-April 2019 to 9.45% in January-April 2021. If more of them had opted for work, the current unemployment rate would have been higher than 6.83%.

In the Economic Survey of 2016-17, the then Chief Economic Adviser Subramanian had flagged UBI. He had said the time was ripe for discussing it, if not for implementation. UBI should be universal, he said. State support should be available to all by virtue of their citizenship. India’s experience with welfare schemes showed that targeting leads to deserving persons being excluded and non-deserving ones getting included. Aadhar numbers were good for identification, but did not help in determining eligibility.

By assuring every person — and not a household — of a minimum income, UBI gives them a stake in a just and stable society, Subramanian said. It makes them autonomous too. In our paternalistic and hierarchical social structure, transfers to households will very likely be appropriated by males. A transfer to every person’s bank account would give women dignity and autonomy. They are less likely to spend the money on temptation goods like alcohol or tobacco and more likely to spend it on their families — on nutrition, education and health — which would help in upward mobility. It is also a way of acknowledging the contribution of those like homemakers, who work but are not paid.

An assured income every month will improve the bargaining position of workers, the Economic Survey said. They are unlikely to accept exploitative work or work that makes them hostage to necessity. Is it possible that people will take the money and laze around rather than look for work? The Economic Survey says this is unlikely because UBI would be capped at a level that would force people to seek work.

Jan Dhan accounts

UBI has become feasible now because of no-frills Jan Dhan accounts that have been opened from August 2014 onwards. Currently there are 420 million of them. More than half of the beneficiaries are women. In 2016-17, about 57 percent were linked to Aadhar. Bank accounts linked to Aadhar together with mobile banking have made financial inclusion possible.

There are problems, though. Bank branches or ATMs are not easily accessible in rural and remote areas. Meeting know-your-client (KYC) norms with Aadhar biometric identification has been problematic in places like Jharkhand, where Jan Dhan accounts have been blocked wholesale. Vulnerable people like widows, the aged and the infirm and those who are illiterate may find it difficult to operate bank accounts or smart phones. There is the real possibility of capture by corrupt persons including bank officials.

How much will UBI cost? The Economic Survey had estimated that a per person annual transfer of Rs 12,000 in 2010-11 would have to swell to Rs 16,973 in 2016-17 to buy the same quantity of goods and services. Discounting that figure by the annual inflation rate, one estimates that UBI would have to be Rs 19,888 in 2019. If, say, Rs 20,000 were given to each of the country’s 1.39 billion people, the cost would be Rs 27.80 trillion or 14 percent of the country’s 2020-21 nominal GDP.

But universalising UBI will run into opposition; people will balk at the thought of the non-poor being paid at state expense. This can be dealt with by excluding those who own assets like cars, or pay income tax or get pension. They could also voluntarily opt out as happened with the subsidy on cooking gas. A truncated UBI which includes all but those who are obviously not poor would cost about 11 percent of GDP, the Economic Survey had estimated.

Fiscal position

To create the fiscal space, other welfare schemes like the provision of subsidised grain through ration shops would have to be discontinued. But PDS has proved its relevance during the pandemic this year and last. There is little point in cash transfers if there is no grain to buy, or it is so scarce as to be priced out of reach. Phasing out subsidies on, say, higher education will draw the ire of the middle class. A wholesale replacement of the current welfare schemes for UBI will create a political storm that no government would like to face.

It may be better to continue with the current system of distress doles to help vulnerable people tide over the economic crisis. This is also the time to invest in state healthcare. Universal, state-paid quality healthcare services would save people from sliding into poverty or indebtedness because of catastrophic bills from private healthcare providers.