If social inequality is the most acutely felt social problem in India, insecurity, more than poverty, is the most acutely felt economic problem. While most measures suggest that only around one-fifth of the population today is under the official poverty line, large sections of them even much above that line are subject to brutal economic insecurities of various kinds (due to weather or health risks, market fluctuations, job uncertainties, etc.). Anxiety about such insecurities occasionally spills over into the streets and politicians wake up and feel they have to do something.
In recent times both BJP (around election time in UP and Maharashtra) and Congress (in Punjab, and now Rajasthan, MP and Chhattisgarh) have rushed to the fire of farmer wrath with wild schemes of bank loan waivers. This is, of course, a bad idea not just because it plays havoc with the banking culture (just as that of loan waivers for corporate defaulters does), but most of it goes to help the middle and large farmers (more than two- thirds of our farmers are marginal farmers with less than 1 hectare of land, only 20% of whose loans are from institutions like banks, they owe the rest to private lenders, which the waiver programme will not touch).
Some politicians are now paying attention to the politically successful Rythu Bandhu example of income support to Telengana farmers (at about Rs. 10,000 per hectare). The idea of income support is better than price support for farm products (which in any case does not help small farmers who mostly sell their produce to the traders at harvest time, and also applies in practice to a very limited number of crops and states). But it requires much better land records than we have in most states and leaves out the large numbers of even poorer landless workers.
All this distress arises directly or indirectly from India’s singular failure in creating enough secure jobs. The farm distress is ultimately because of low productivity (due to lack of enough irrigation, cold storage and extension service, apart from the effects of climate change), and the low-earning farmers themselves want to move to non-farm jobs. This has been a failure of all political parties over many decades. The recent finger-pointing to the Prime Minister for the failure on the job front is only because he has been the loudest in promising jobs. The absence of secure jobs is also behind agitations on job reservations even by dominant castes (marathas, patidars, jats, kapus, etc.) and behind the mobilisation of lumpen elements of the ruling party affiliates in various incidents of extortion in the name of cow protection and minority lynchings.
To put our mind to the difficult task of creating a sufficient number of secure jobs is, of course, highly imperative. But it is a long-term project (with some exceptions like the important proposal for extending the employment guarantee scheme to urban-sector public works as well). Meanwhile extending schemes of social protection for relief of the massive economic insecurity is urgent and politically expedient.
One idea is that of a Universal Basic Income Supplement (UBIS), which avoids some of the problems that we have mentioned for loan waivers and farm income support per hectare, and also some of the administrative and incentive problems of most insurance schemes (the much-hyped current farm insurance premium subsidy scheme has been hobbled by low participation and tardy claim settlements, often benefiting private insurance companies more than the farmers). UBIS should be looked upon not as an anti-poverty programme, but mainly as part of the citizen’s right to minimum economic security.
But what about the fiscal cost of UBIS?
We know that the highly defective loan waiver programme, if applied to all states in India, will easily cost more than 4 trillion rupees. The farm income support plan at the Telangana rate for all of India will also come to more than half of that amount.
The feasibility of a UBIS, of course, depends on the size of the supplement one has in mind, and mainly on the political will to increase the tax-GDP ratio, and (assuming that none of the existing major anti-poverty programmes will be significantly scaled down) to cut down on various subsidies largely enjoyed by the better-off sections of the population. It has been estimated that the latter subsidies (for the central and state governments together) currently come to about 6% of GDP; another 6% of GDP is in the form of “revenues foregone” or tax concessions in the central budget—take at most one-third of this (2%), since some of these concessions may be helping necessary business; think of another 2% of GDP from taxing currently exempted wealth, inheritance and long-term capital gains, and currently under-assessed and under-taxed property values in urban and peri-urban areas (at a time when the National Sample Survey evidence suggests that our wealth inequality is mounting, and is already in the Latin American range). All this adds to a mobilisable surplus of about 10% of GDP.
There are important and legitimate claims on these resources for programmes of infrastructure building, health and education. But at least a quarter of these resources can pay for a decent UBIS for everybody (a household of 5 people can get about 16000 rupees per year). To start with, give it only to women, which will halve the cost; on a rough estimate it will then cost about 2.6 trillion rupees or about 1.6% of the current GDP.
The fiscal bureaucrats, of course, will shake their heads and consider all this unrealistic. But we should let the politicians know that the potential is there to tax (and reduce the subsidies for) the better-off and address India’s staggering problem of economic insecurity. If we fail to do that it is a political failure for which we have to pay dearly (both in terms of economic welfare and our democracy) in near enough future.