Undermining Welfare

Universal Basic Income can’t be a substitute for the PDS

Written by Sourindra Mohan Ghosh , Imrana Qadeer | Updated: February 8, 2017 2:17 am
 Union Budget, Budget 2017, 2017 Union Budget, Universal basic income, public distribution system, Economic survey, India news, Indian Express Union Finance Minister Arun Jaitley with Chief Economic Adviser Arvind Subramanian (L), Economic Affairs Secretary Shaktikanta Das (2nd L) at North Block in New Delhi. (PTI Photo)

The Economic Survey (ES) has joined the debate on universal basic income (UBI) by comparing its benefits with that of welfare schemes it can replace. It discusses the Public Distribution System (PDS) at length, especially its errors in targeting and the high levels of leakage. While recognising that these have reduced significantly, the ES favours UBI “as a choice over current entitlements”.

The greatest impact of the PDS is it provides cheap food to the vulnerable. Calculations from NSS 2011-12 data show that, on an average, food from the PDS contributes over 600 calories and 15 grams of protein per head to the daily intake of beneficiary households. This satisfies 28 per cent and 31 per cent of average per capita daily calorie and protein requirements. Despite leakages, the PDS enables an additional 14 per cent households, over 130 million people, to be calorie sufficient. Given India’s persistent under-nutrition, the real question is if UBI will be able to achieve even these modest outcomes if it replaces the PDS.

The PDS provides an implicit saving — the extra expenditure a household would incur if PDS food items are bought from markets. This implicit saving is spent on other items as per the household’s choice. Hence, consumer freedom is present in both PDS provisioning and UBI. People buy from the PDS according to the degree of needs, hence purchase is skewed. The National Sample Survey (NSS) 2011-12 data shows that while the average per head implicit saving for the PDS beneficiary household was Rs 960 (assuming that market prices would not increase if the PDS is dismantled), for 25 per cent of households, the savings would be Rs 1,200 or more. But a calculation based on budget data indicates that if cash transfers are made to PDS beneficiaries of the same year from the central food subsidy after dismantling the PDS, it would not be more than Rs 1,200 per head (assuming no leakages). This amount is grossly inadequate. Rough calculations indicate that cash transfers have to be at least Rs 2,200 per head to compensate all beneficiary households.

These estimates are close to a successful cash transfer study (UNDP-Government of Delhi 2011) which compensated BPL households with Rs 1,000 monthly per family, or Rs 2,400 per head annually (assuming a five-member family) for giving up access to the PDS. Given market imperfections, supply-side factors and the need for state support that is not uniform, the PDS even at its current level of leakages is fiscally more efficient than cash transfer. Additionally, considering the declining leakages and the possibility of leakages in UBI too, its case for replacing the PDS becomes even weaker. Logically, steps must be taken to further reduce leakages in the PDS by expanding its reach and also include other food items, at least pulses, in the basket.

A major lacunae of the ES is that it makes no comparative analysis of food-versus-cash interventions, even while citing such experiments. The only Indian experience the ES examines in detail is a 2011-12 UNICEF-SEWA Bharat experiment in Madhya Pradesh. However, cash transfers there were in addition to existing social welfare programmes. The ES also forgets that the cash transfer amount was increased by 50 per cent after a year to compensate for inflation.

The ES estimates that a UBI, not as replacement but in addition to the existing welfare schemes, amounting to 4-5 per cent of GDP will virtually eliminate “poverty”; the “non-poor” being those spending more than Rs 42 daily in 2016-17 as per Tendulkar Committee projections. Without going into the problems of this definition of poverty, what concerns us is the claim that follows: “Not accounting for replacement would still not seriously affect” these estimates. This claim will hold only if the existing programmes have zero contribution to welfare.

The primary goal of the ES proposal on UBI seems neither to improve peoples’ well-being, nor reduce leakages of welfare schemes. The real agenda seems to limit or even reduce welfare expenditures.

Ghosh is a research scholar at the Centre for Economic Studies and Planning, JNU. Qadeer headed the department of Social Medicine and Community Health at JNU
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