The Indianized version of universal basic income

Ritwika Patgiri

(The writer is a MA Economics,

2nd Year, Jamia Millia Islamia University, New Delhi. She can be reached at ritwikapatgiri5@gmail.com)

The 2019 Interim Budget takes me back to 2014 when the two leading economists of the country battled it out with words prior to the General Elections regarding the path, the growth trajectory of India should follow. Both Amartya Sen and Jagadish Bhagwati have enough credentials to claim a legitimacy of their ideas but what is the right answer, is not the aim of discussion of this article. Rather it is the resemblance of another two sided debate that has come out prior to this year’s General Election- Rahul Gandhi’s Minimum Basic Income and the case against it. The Interim Finance Minister Piyush Goyal in this year’s budget session announced the Pradhan Mantri Kisan Samman Nidhi under which the government will transfer Rs 6,000 per annum to each small and marginal farmers in three installments, benefitting 12 crore small and marginal farmers with a land holding of less than 2 hectares. Earlier, while addressing a rally in Raipur, the Congress President Gandhi said that his party will implement a minimum income guarantee for the poor if voted back to power. His idea of “minimum basic income” is quite different from the concept of “universal basic income” being implemented in small scale in countries such as Finland, Italy, Canada and China, previously a very utopian idea otherwise. The former can be defined as a direct cash transfer to the people living below the poverty line which is more of a targeted scheme rather than a universal one.

Universal Basic Income in India first flagged in the Economic Survey of 2016-17 when the then Chief Economic Advisor of the country Arvind Subramaniam proposed an idea of granting Rs 1,500 every month or Rs 18,000 each year to rural households except those who are “demonstrably well off”, comprising of 75% of rural households at a fiscal cost of Rs 2.64 lakh crore or about 1.3% of the Gross Domestic Product (GDP). The crux of the Economic Survey’s definition of UBI was “a society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity”. This targeted cash transfer should be seen more as a welfare scheme covering one-third of the current consumption of the poorest 40%of the population, rather than a poverty alleviation scheme. Subramaniam, calling it a Quasi Universal Basic Rural Income (QUBRI), claims that cutting down on unnecessary and wasteful subsidies should be the mode of financing the scheme rather than being financed from RBI resources or breaching fiscal targets, making it fiscally neutral. The agricultural sector is in distress, the lack of agrarian reforms and the consequent problems have been manifesting in the country- the rural farmers definitely need a push.

What are these wasteful subsidies then? Interest rate subsidy for crop loans amount to Rs 15,000 crore, Fasal Bima Yojana amount to Rs 11,000 crore, Additional MSP/Price Deficiency scheme amount to Rs 10,000 crore and fertilizer subsidies amount to Rs 70,000 crore. These are heavy numbers. It is true that overutilization of fertilizer subsidies in the Punjab-Haryana belt has led to an unbalanced NPK ratio, making the argument for investment in improving agricultural efficiency and infrastructure like marketing facilities and ensuring proper price of the produce stronger. Fertilizer subsidies are also accused of generating widened regional disparities with the Northern belt gaining more. It is also being argued that large farmers benefit more from such subsidies. On the other hand, cutting down subsidies would mean a rise in the prices of the products resulting from a rise in cost of production implying a further cycle of agrarian distress. The direct cash transfer, with its fiscal neutrality, looks good on paper but cutting down such large sums of subsidies is a political gamble that no one would like to take. This is a direct shifting of income from large farmers to smaller and marginal ones, a dangerous move for any political party. The other issue is the debatable likelihood of small and marginal farmers to forego these subsidies- they are getting benefitted, if not as much as the larger ones!

The argument that a direct transfer of income would take away the incentive to work is a laymen’s judgment- if an individual is very poor, a meager amount of Rs 1,500 will do little to his/her incentive even if the Poverty Line mark is crossed. However, it does deviate from the real problem of the agriculture sector- it will neither cover the losses due to crop failure nor will it be enough to help finance inputs or investment for a large number of farmers. The targeted or conditional version of the Universal Basic Income, moreover, may not be as effective as the unconditional or universal version. There is a possibility of unfair exclusion and unwarranted inclusion of individuals. The poverty line as claimed by Suresh Tendulkar is of Rs 7,620 per person per annum inflation indexed to 2016-17, is already criticized for underestimation- C. Rangarajan has claimed that the percentage of people living below the poverty line in India is 29.5% and not 21.9% as marked by Tendulkar. But the government follows the Tendulkar line. Another noteworthy point is a person earning Rs 7,700 per annum is not “demonstrably well off” but is above the poverty line, making him/her excluded from the targeted scheme, thereby leading to more inclusionary-exclusionary problems. The other argument against the targeted scheme is that the gendered nature of economic situation of individuals- women, in general, are more deprived, hence poorer as compared to males within a household, and more so in rural households when the girl child is expected to give up her share of “milk” or “egg” to her brother(s).

Between 2010 and 2013, a small scale direct income transfer was made in Delhi and Madhya Pradesh covering some 6000 beneficiaries. Studies show that nutrient intake has increased among the individuals along with rise in school enrolment ratio and female attendance ratio. There is also a reduction in household indebtedness. Moreover, consumption of pulses has reportedly increased by 1000%, fresh vegetables by 688% and meat by 600%. There was no evidence of increase in alcohol consumption against the belief of most associated with such direct cash transfers. The problems of moral hazard and loan waiving would not loiter around such a scheme and there will be a decline in the locking up of low productive jobs. The recent Krushak Assistance for Livelihood and Income Augmentation (KALIA) Scheme initiated by the Odisha government to benefit about 92% of the farmers- small and marginal along with landless as well as vulnerable agricultural households in the state by providing them financial, livelihood and cultivation support along with insurance support and interest free crop loan, is another political marvel ahead of the upcoming elections in the state. The Agriculture Investment Support Scheme or Rythu Bandhu of Telangana with a budget of Rs 12,000 crores provides a grant of Rs 4,000 per acre per farmer each season for purchase of agricultural inputs. The Minimum Income Guarantee is sought to be more progressive with its fiscal neutrality and inclusion of non-farm households. It can make an impact against the changing agrarian climate of the economy, the risks of which can be evaluated only if carried on.