Appealing, but impractical

Universal Basic Income is an idea whose time hasn't come

Policy circles are yet again abuzz with the possibility of implementing a universal basic income (UBI) in India. According to definition, under a UBI scheme, the state is supposed to take away all existing subsidies and replace them with a single cash payout to all citizens, regardless of what they do and how much they earn. Proponents of the UBI assert the government could, in one stroke, get rid of a whole host of problems that plague the modern welfare state. For instance, there will no longer be any need to painstakingly figure out who is eligible for a subsidy and who is not, since the UBI is “universal”, not targeted. As such, there won’t be leakages due to petty corruption and there won’t be errors of exclusion (where the undeserving are given subsidy) or inclusion (where the deserving lose out on subsidy).

The UBI idea is not new but three broad elements have raised its appeal: The continuing inefficiency of the modern welfare state where service delivery is pathetic; the recent failure of the global economy to create enough well-paying jobs, leading to demands for active state intervention; and the advancement in information technology, which allows the state to conceive of reaching each and every citizen directly. No wonder then that the UBI is one of those rare ideas that have enticed policy wonks across the spectrum. The left-of-centre thinkers like the UBI’s promise of reaching the poor in an efficient manner and the right-of-centre ideologies see it as a way to curb the ever-expanding state machinery and allow for greater play of the market forces and prices.

And yet, the UBI is an idea so impractical that, if implemented, it could lead to poor consequences. There are questions galore. For instance, what should be the level of the UBI? If it is, as some have suggested, Rs 300 per month, then it is too low to compensate for all the existing state interventions ranging from cheap food grains to subsidised schooling to maternal health safeguards to crop insurance to employment guarantees. If the UBI level is much higher, it will not be fiscally viable to fund it — interestingly, in 2016, Switzerland, with a GDP per capita of over $75,500 (as against India’s $1,800), overwhelmingly rejected the UBI because it would be too costly. Moreover, a high UBI invites moral questions such as why people will work if everything is free, and how their behaviour will alter if there is no work. In any case, removing all subsidies is an impractical idea in a democracy such as India. Finance Minister Arun Jaitley hit the nail on the head when he said the government could land in a situation where people stand up in Parliament and demand continuation of the present subsidies while pushing for the UBI. That’s something the Budget can ill afford. What is required, instead, is to use the UBI trigger to make the existing government machinery more efficient in delivering public goods as well as education and health care.