A contentious proposal

The interest in UBI seems to be building up significantly from several quarters and it is quite possible that the government is contemplating some steps in this direction in the upcoming budget.

Written by Subhashis Banerjee | Updated: January 14, 2017 12:45 am

Surjit Bhalla, in his article, ‘Financing basic income for the bottom 50 per cent’ (IE, January 7) has made several policy recommendations for poverty alleviation. He has suggested Universal Basic Income (UBI) as a logical extension of the Direct Benefit Transfer (DBT) and scrapping of government schemes like the PDS and MGNREGA for financing the UBI. The interest in UBI seems to be building up significantly from several quarters and it is quite possible that the government is contemplating some steps in this direction in the upcoming budget. In view of this, Bhalla’s recommendations are extremely significant and require careful peer review and expert analysis. However, since the article was targeted at the general audience, the following concerns immediately come to the lay mind.

The financial outlay required appears to be significantly more than what Bhalla has estimated. At Rs 1,000 per person per month, or Rs 12,000 per person per annum, for 20 per cent of the population, the required outlay is Rs 3.18 lakh crore, which is three per cent of the GDP. The last three rows of the table in Bhalla’s article seem to suggest this outlay for 50 per cent of the population at the same rate.

The financial outlay required may be even more because, according to Bhalla himself, the poverty line at Rs1,525 per person per month yields a national poverty rate of 20 per cent. The figure of Rs1,000 per person per month is considerably lower than this figure. In view of this, there seems to be something amiss in his claim that the government needs to transfer only Rs one lakh crore to reduce the poverty level from 20 per cent to zero. In fact, the Rs 1,000 per person per month figure does appear to be on the low side.

The article also claims that the black income generated from the two programmes, PDS and MGNREGA, is to the tune of Rs 1,75,000 crore. Since the annual outlay for these two programmes is of the same order and it cannot possibly be the case that the entire amount is converted to black money, the black money figure must be the aggregate figure for several years.

Bhalla has also claimed that demonetisation will allow increased personal income tax collection, possibly of Rs 1-1.5 lakh crore. However, he does not provide any analysis for this claim. From the recent commentary of several other experts in various popular articles, this estimate appears to be in considerable doubt. Even if the above estimate is
correct, and the PDS and MGNREGA schemes are scrapped, the Rs 3.5 lakh crore (approximately) that will be available to the government falls short of the requirements for the bottom 50 per cent of the population.

Bhalla has reposed faith in technology, especially Aadhaar, and recommended that cash transfers should replace in-kind transfers. However, from several other accounts (for example, from the Identity Project series in Scroll.in), it appears that such technologies are not adequately tested and are causing large-scale disruptions and exclusions among the poor and the under-privileged. Till such technologies are proven to be reliable, it will be premature to rely exclusively on them.

Bhalla suggests scrapping the PDS and MGNREGA schemes, but does not provide a cost-benefit analysis of his suggestions. He seems to consider only the costs of these schemes, not the benefits. It is not at all clear that if the PDS scheme is withdrawn, then government or private sources can profitably and competitively provide the required food supplies at rates affordable by the income from the UBI scheme. The open market may turn out to be too expensive for the poor and the under-privileged, even with the UBI. And the problem may be compounded by
inflation. Surely this requires analysis?

Bhalla seems to suggest an inflation-graded UBI scheme for the poor. However, the UBI scheme may itself bring in surplus money to a section of the economy and thereby cause inflation, at least in that section. Surely a stability analysis is required? Also, the government’s record at indexation has not been too good.

Finally, it is not clear whether the basic income scheme should be universal or targeted, and how beneficiaries may be identified if it is the latter and why the not-so-needy will opt out if it is the former. There seem to be enough concerns about the UBI proposal, at least, to the lay mind, to be cautious about it.

The writer is professor, department of computer science and engineering, IIT Delhi
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