Quoting Mahatma Gandhi, Chief Economic Advisor Arvind Subramanian has advocated the idea of a Universal Basic Income (UBI) to bring down the poverty level in the country in the Economic Survey 2016-17 that was tabled in the Parliament today.
The Economic Survey, authored by Subramanian, pitched for a scheme to transfer a reasonable basic income to Indians below the poverty line based on a survey on misallocation of resources which showed that districts where needs are the greatest are precisely those where state capacity is the weakest.
Subramanian began the 41-page chapter titled ‘Universal Basic Income: A Conversation With and Within the Mahatma’ with two quotes from the father of the nation. Tweeting out a screenshot of the first page of the chapter, Subramanian wrote, “Is it time to consider a Universal Basic Income? What would the Mahatma have thought of the idea?”
The survey proposed the idea as an alternative to various social welfare schemes in a bid to reduce poverty and said that UBI is a "powerful idea" whose time has come for serious discussion.
"The UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion," said the Economic Survey for 2016-17, which was tabled in Parliament by Finance Minister Arun Jaitley.
Stating that the Mahatma would have anxieties about UBI as being just another add-on government programme, but on balance may have given the go-ahead, the Survey pointed out that the two pre-requisites for its success are functional JAM (Jan Dhan, Aadhar and Mobile) system and Centre-state negotiations on cost sharing for the programme.
Observing that UBI, based on principles of universality, unconditionality and agency, is a conceptually appealing idea, the Survey also spoke of implementation challenges.
Citing a survey on mis-allocation of resources for the six largest central sectors and centrally sponsored sub-schemes (except PDS and fertiliser subsidy) across districts, the Economic Survey pointed out that the districts with most requirements are precisely the ones where state capacity is the weakest.
"This suggests that a more efficient way to help the poor would be to provide them resources directly through UBI," it said.
Subramanian has even calculated the UBI for year 2016-17 as Rs. 7,620 per year.
"Based on the 2011-12 distribution of poverty, it seems clear that going from a certain very low level of poverty to eliminating it will be prohibitively high. So, a target poverty level of 0.45 percent is chosen. Then the 2011-12 consumption level is computed for the person who is at that threshold. The next calculation is the income needed to take her above Rs. 893 per month, which is the poverty line in 2011-12. This comes to Rs. 5,400 per year," he writes.
“Subsequently, that number is scaled up for inflation between 2011-12 and 2016-17: this yields INR 7620 per year. This is the UBI for 2016-17,” the survey says.
"The survey assumes that in practice any program cannot strive for strict universality, so a target quasi-universality rate of 75 per cent is set (this is later referred to as de facto UBI)," he says.
The Survey estimated that a UBI that reduces poverty to 0.5 per cent would cost 4-5 per cent of GDP, assuming that those in the top 25 per cent income bracket are not part of it.
"On the other hand, the existing middle class subsidies and food, petroleum and fertilizer subsidies cost about 3 per cent of GDP," it noted.
“The economy-wide cost is then the UBI number multiplied by 75 percent. This yields a figure of 4.9 percent of GDP.”
This is less than the 5.2 per cent of GDP that the government spent on Centrally Sponsored and Central Sector Sub-schemes in year 2016-17, according to the survey.