Having got to the second half of its tenure, the Narendra Modi government is beginning to flex its reformist muscles. Two more radical proposals have been delivered during Budget week. First was the idea floated in the Budget of reforming the funding of political parties. Like demonetisation, it makes cash an outlaw but cheques and bonds respectable. That will be subject to much debate but it is about politicians, not people.
The Economic Survey has proposed a radical step, of instituting Universal Basic Income. If implemented, it would touch many lives. This would be an entitlement to specific groups in the form of direct cash transfer in place of the many subsidies which are capable of being misused and often miss the target. It is not yet a policy, only a proposal for discussion.
Firstly, let me say that it is a mistake to call it Universal Basic Income. It can never be universal, i.e. given to 100 per cent of the population. The crorepatis are undeserving. Nor can it be large enough to be income, obviating the need to work. It should be called Targeted Basic Allowance.
Even then, there are problems.
It would have to replace all existing subsidies — food, PDS, the MNREGA, fertiliser. Together these subsidies take up around 3 per cent of the GDP. Evenly distributed to, say, the bottom 30 per cent, the 3 per cent would give each individual one tenth of the per capita GDP or around Rs 10,000 per year. The Economic Survey proposes that 5 per cent of the GDP could be spared for the scheme. If so, you can either extend the scheme to the bottom 50 per cent of the population, or give more to the bottom 30 per cent — up to one-sixth of per capita GDP — about Rs 16,500. The Survey says only the top 25 per cent should be excluded. Then each individual in the bottom 75 per cent would get Rs 6,500. The larger the section of the population covered, the less there is for each.
It won’t be easy. It is one thing to give free money to the poorest, be it 20 per cent or 30 per cent. But giving it to as many as three-quarters of the population may lead to some opposition. People could object to giving money to the not-so-poor. For any cut-off point you choose, those just above will become unhappy. They may even have an incentive to ‘impoverish’ themselves to deserve the supplement.
Anyone who becomes better off and loses the allowance would feel deprived.
The difficulty of all such schemes is that once you have started, there is constant pressure to increase the size of the entitlement and the extent of coverage. If you begin with the lowest 30 per cent and give Rs 16,500, you can get them all out of poverty. If they are also working they may soon be out of the bottom 30 per cent and lose the entitlement. So it is difficult to use income as an indicator of entitlement. We should also avoid using criteria which may invite cheating. Entitlement has to be based on criteria which cannot be gamed.
I would propose that the allowance should be paid to women only. They constitute almost half the population. Many cannot earn as they have to look after their families. When they work for wages, they are underpaid. The criterion cannot be gamed.
It would revolutionise Indian society.