Economy

Before Universal Basic Income, We Must First Get Social Spending Basics Right

Providing a UBI in place of existing schemes will not change the fundamentally unequal income distribution in the country. The way to resolve the crisis is a redistribution from the rich to the poor.

Representative image. Credit: Reuters

Representative image. Credit: Reuters

The Economic Survey 2016-17 devotes a chapter to the provision of a Universal Basic Income (UBI), describing it as a “raging new idea,” a “radical new vision” and “the shortest path to eliminating poverty”. While warning that the UBI “should not become the Trojan horse that usurps the fiscal space for a well-functioning state,” the survey says a de facto UBI can be instituted in the existing “fiscal space”. It argues that winding up existing subsidies and welfare schemes could generate enough resources to institute UBI. To make this argument, the survey includes a table which lists the subsidies and costs of the existing social sector programmes and their expenditures. While the survey uses the table to calculate the amount of UBI that can be provided by scrapping the subsidies, the list includes something else of interest – the low expenditure on food, health, education, pensions et cetera. India’s ridiculously low social expenditure is the real problem that needs to be discussed urgently. While it is a well-known point, it is getting lost in all the hype and excitement around the UBI and needs to be reasserted.

The UBI is just a mode of transferring money from the government to its citizens. Various modes of transfer already exist; some of them are in-kind transfers (PDS, mid-day meals), some are subsidies and others are in the form of cash transfers (pensions, LPG). The Survey makes a case for UBI by citing the misallocations and leakages in the existing schemes. We believe that the question of poverty and deprivation cannot be addressed on the hope that a new mode of transfer will fill up the leakages in the existing schemes. For that, along with ensuring that the expenditure reaches the intended beneficiaries, we need to increase our public expenditure levels. The Budget, presented the day after the survey was released, makes it clear that the government has no intention of changing the trajectory of social sector expenditures. While the budgetary provisions (as a percentage of GDP) for health increased only marginally from 0.25% (2015-16 Revised Expenditure) to 0.28%, the allocation for education came down from 0.49% of the GDP to 0.47%. Development expenditure, rural expenditure and the total expenditure as a proportion of GDP are all projected to fall in 2017-18 and the government is adhering to a stringent fiscal deficit target of 3.2% of the GDP. To put things in perspective, we compare India’s expenditure levels to those of some selected countries.

India’s expenditure on health and education is much lower than some relatively poorer regions of the world. For instance, Sub-Saharan Africa, Nepal and Bhutan are ahead in terms of health and educational allocations. Large countries like Brazil and China fare much better than India. The countries that India is supposed to be emulating by moving towards UBI spend many times more on these basic public provisions. These figures provide good insight into why India stacks up poorly in comparison to most of these countries when we look at indicators like infant mortality rate or life expectancy at birth. The expenditure levels are so low that a mere change in the mode of transfer from in-kind to cash will not make much of a difference.

Having made the point that public expenditure levels need to go up, we want to comment on some other aspects of the UBI. While the Economic Survey has based its case of closing down the existing scheme because of the misallocation of funds, it has not provided any evidence of what these schemes have actually achieved. Many studies have shown that leakages in the PDS have reduced drastically in many states, resulting an an extension in PDS coverage. There is evidence that the PDS has helped not only in poverty reduction but also in improving nutrition. The MGNREGA has also proved to be a saviour for many in the distress-prone rural economy. Instead of gambling by assuming that a UBI will perform better than these schemes, we need to strengthen the existing programmes. The PDS can be further reformed on the lines of Tamil Nadu and Chhattisgarh’s changes which expanded the PDS’s basket of goods to include more nutritious items like pulses. Given the fact that India was ranked 97th out of 118 countries in the Global Hunger Index 2016, the Centre can also learn from the Tamil Nadu and Delhi experiment and set up subsidised canteens. Moreover, if the central government is serious about cash transfers, it first needs to increase the amount of pension provided to poor individuals from the current paltry figure of Rs 200.

Defining ‘basic’

Another problem with the UBI is defining the ‘basic’. One can assume that if UBI replaces the existing schemes, it will provide the amount to cover citizens’ basic expenditures, including food, healthcare, education and the like. Calculating this basic, however, is a very complicated task, particularly in a country as heterogeneous as ours.

We want to highlight the spatial heterogeneity here. Table A gives the Monthly Per Capita Expenditure (MPCE) (URP) generated by the 2011-12 NSSO consumption expenditure surveys, and updated 2015-16 prices using CPI-AL for rural and CPI-IW for urban areas. The total MPCE is more than two times higher in urban areas than in rural areas. Clearly, a uniform UBI would not do justice. Even the composition of expenditure is very different in rural and urban areas. The expenditure on education and conveyance is five times higher in urban areas; the share of rent is many times higher. Given the differences in expenditure levels on basic items and disparities in the costs of living, it is difficult to come up with one UBI which will adequately provide for everyone’s basics. This is a very simplistic table and the reality is far more complicated. We live in times when workers move between peasant cultivation, farm labour , MGNREGA, rural non-farm work and migrate to urban areas as urban manual labour. A case can be made for a differentiated UBI based on some criteria, but then again we fall into the targeting trap. It will instead be a lot easier and a lot more effective if public provisions are made for food security, health, education, pensions and so on.

Some Components

of MPCE

MPCE(in Rs) MPCE Ratio Share in MPCE (%)
Rural Urban Urban/Rural Rural Urban
Food 850.0 1530.8 1.8 48.6 38.6
Education 54.4 278.6 5.1 3.1 7.0
Medical 119.8 137.7 1.1 6.9 3.5
Conveyance 83.3 410.4 4.9 4.8 10.3
Fuel & Light 161.6 347.8 2.2 9.2 8.8
Clothing & Bedding 109.8 123.3 1.1 6.3 3.1
Rent 8.6 290.8 33.7 0.5 7.3
Total Expenditure 1747.8 3969.4 2.3 100.0 100.0

Monthly per capita expenditure (2015-16 prices). Source: Key Indicators of Household Consumer Expenditure in India, NSSO, 2013.

Lastly, we want to give the survey credit for starting a discussion on having a UBI for women. For centuries, women’s work in the care economy has been taken for granted and considered unproductive. It is high time this fallacy is corrected and provisions are made for a basic transfer of resources for the services that women provide. However, the fiscal space for this – or for strengthening public provisioning – should not be created by replacing existing schemes like the PDS and MGNREGA or cutting crucial subsidies, but from increasing government revenues. As is well known, India’s tax-GDP ratio is extremely low. The government has the option of generating more resources by increasing the tax-GDP ratio, reducing the corporate tax exemptions and introducing wealth and inheritance taxes. Inequality-inducing growth in India is worsening the country’s income distribution, skewing it in favour of the population’s top decile. Providing a UBI in place of existing schemes will not change the fundamentally unequal income distribution in the country. The way to resolve the crisis is a redistribution from the rich to the poor, one that takes care of the ‘basics’ in a modern democratic society. Hoping to achieve this just by hopping onto the UBI bandwagon is wishful thinking.

Anjana Thampi and Ishan Anand are doctoral students at Jawaharlal Nehru University, New Delhi.