Economy

Unless Carefully Considered, Universal Basic Income Could Have Disastrous Consequences

In the absence of working and effective infrastructure, cash transfers cannot ensure that the poor and those most at risk will get the quality of life they deserve.

Problems have cropped up in conceptualising Universal Basic Income. Credit: Reuters/Rupak De Chowdhuri/Files

Even as the demonetisation exercise peters out, another concept has been seeded – that of giving a basic income to all Indians. This was mentioned both by the finance minister in his Budget speech and the chief economic adviser in the Economic Survey. The idea is irrefutable – a minimum salary, paid by the government, would allow all Indians at least a basic acceptable standard of living.  

But is that not the purpose of economic activity and the responsibility of all effective governments? To create jobs and employment that produce real growth and real value, which is acknowledged in real terms when people get remunerated for the real value they create.

If we stay with this hypothesis, the implementation of a Universal Basic Income (UBI) scheme looks and feels very different from just paying people a basic income. MNREGA, for which a budgetary allocation of Rs 48,000 crores was announced in the recent Budget, was designed to do just that – guarantee a minimum of 100 days of employment to every family in rural India, to ensure a ‘better than subsistence’ standard of living. What then could be the economic rationale to add another big scheme – a euphemism for subsidies – and one filled with implementation challenges?  

The argument in favour of a UBI comes from the realisation that even with a GDP growth of over 6.5% in the last decade, unemployment is on the rise. Despite all good intent and the announcement of several programmes like ‘Make in India’, the government has so far not succeeded in either creating jobs directly, or by encouraging industry to do so. There are nearly 10-12 million people who enter the job market every year. Against this, the total new jobs created last year was less than 150,000.

The scenario seems unlikely to change in the near future. Of course, the paradox is that, simultaneously, we are short of primary school teachers (1.2 million), policemen (1.5 million), municipal staff (0.5 million), doctors and nurses, plumbers and masons, lawyers and 5,000 judges. In the healthcare sector alone, the Public Health Foundation of India had estimated a shortage of nearly one million anaesthetists, two million dental staff, 130,000 ophthalmologists and optometrists, two million rehabilitation specialists, 61,000 medical laboratory technicians, 19,000 radiographers, 7,400 audiology and speech language specialists and 230,000 medical technology workers. Would it not be a better use of resources all round, if there was a concerted effort by all ministries concerned to close the gaps and fill the voids through education, training and skill development?

The private sector is currently over-capitalised and, therefore, not investing to expand capacity. Domestic consumption demand has not picked up and the global economy is not encouraging a recovery in exports. On top of this is the fear that automation will make new job growth even more difficult. In the developed countries a large number of jobs are increasingly being done by intelligent machines and robots, thus generating policy debates globally, to guarantee a minimum wage to all.

The spectre of unemployment is haunting policy makers around the world as it creates layers of social and economic problems. In India the latest manifestation of this has been the huge protests in favour of jallikattu in Tamil Nadu. The severe backlash against the proposed ban, with thousands of youth protesting on the streets and urging the government to call off the ban, has baffled everyone, just as the massive protests on reservations did over the last few years.

We have also seen youth – belonging to the better-off communities like the Jats in Haryana, Patels in Gujarat and Gujjars in Rajasthan – demanding caste-based reservation. These upper castes now want to be moved into the backward caste lists as they face a situation where their traditional occupation in agriculture is no longer remunerative and jobs in the formal market are few and far between. The perception therefore is that people belonging to lower castes are getting the few jobs that exist. Large scale protests are then the only way to urge the government to expand the list of backward castes.

At its most fundamental level, it is believed that a guaranteed minimum basic income will provide the means for the jobless to lead a simple life without being deprived of essential food and clothing. But this belief misses the core point of the resources required to meet, even the basic needs of a very large population that continues to add 22 million new people each year. Additionally, it accepts the fact that the various schemes of the government, including several new ones announced by the present government, will be insufficient in ensuring a minimum standard of living for our people. These include the MNREGA of the previous government and this government’s Make in India, Adarsh Gram Yojana, Pradhan Mantri Awas Yojana, Mudra Bank and Garib Kalyan schemes. The UBI could be the one single cash transfer that does away with all these attempts at poverty reduction.

Let us look at some salient numbers. Even if the poor alone are paid at the poverty line of Rs 1090 per capita per year, the total outlay would approximately be Rs 3.5 lakh crores, which would mean a cancellation of all other income transfer schemes and subsidies paid by the central and state governments in health, education, electricity, gas, etc.

At the moment the government spends about Rs 50,000 crores on the MNREGA and approximately Rs 2 lakh crores on the Public Distribution System. Will the government drop these schemes after bringing in the UBI? If it does, then the belief is that cash transfers will be made to the poor (facilitated by JAM) and the huge administrative costs currently incurred in administering these programmes, together with the leakages that abound, will be eliminated.

The current reality of the hundreds of millions of poor people in our country poses several formidable challenges. While a billion people are enrolled in the Aadhaar scheme, there are another 300 million who still do not have any identification. Also, with at least half the population not included in the formal banking system, a UBI scheme cannot be fully implemented. A large number of subsidies and transfers are done by state governments – with nearly 50% of primary school enrolment within the government system and at least 25% of healthcare provided by state run health care programmes, however inefficient and rusty. Unless the Centre and states collaborate to withdraw existing schemes, replace them with one grand ‘Income Transfer Scheme’ and create the infrastructure for healthcare, education and other basic services, any thought of UBI will have catastrophic consequences.

So, one may ask, why are we even thinking about the idea? Cash transfers, in the absence of working and effective structures, governance and infrastructure in education, healthcare, hygiene and sanitation and nutrition etc., cannot ensure that the poor and those most at risk will get the quality of education and care they deserve. Imagine a complete withdrawal of the government from food procurement, which could lead to a major upheaval for farmers who are already facing a large burden. Food and nutrition security pose a risk for any nation, where there is widespread social and income inequality, cultural norms that marginalise women and children, especially girls and where there is not enough awareness of the significance of hygiene, sanitation and nutrition. A country where over 200 million people sleep hungry every night has to ensure that the food markets work for the poor.

The debate has begun and it will be interesting to see where it leads. Finland has started giving a basic income to 2000 of its citizens. Switzerland might start something similar soon. The Economic Survey released in February discussed this issue in some detail. This needs serious thought from multiple stakeholders – economists, sociologists etc and civil society. Will the prime minister wait for all constituents to discuss this or will he launch this as yet another surprise move?

Vinita Bali is former managing director of Britannia Industries and Amir Ullah Khan is a developmental economist.