 "budget, 2017")
Last week, Jammu & Kashmir Finance Minister Haseeb Drabu proposed a big change in the current subsidy architecture of the state.
The idea is revolutionary: Drabu has proposed a basic income transfer to all those living below the poverty line — in place of the social welfare schemes that are being run at present. The announcement is widely seen as a precursor to Finance Minister Arun Jaitley announcing in the Union Budget, scheduled for February 1, a similar transition. While there have been news reports conflicting the basic nature of the transfer — whether it is an income transfer or a universal basic income — the finance minister will have to address two critical questions.
First, who are going to be the intended beneficiaries of the scheme? Second, what will be the quantum of transfer and how will it be funded?
On the first, sources suggest the government might be looking at the socio-economic caste census to arrive at a list of possible beneficiaries for its social security programmes. It is possible that socio-economic classification (SEC) data will be clubbed with the Aadhaar platform to form the basis of the new social security regime.
Now, according to the SEC data, of the 179.7 million households in rural areas, 70.7 million households are automatically excluded from the deprivation list. Of the remaining 100-odd million, 87.3 million households have any one of the seven deprivation criteria. This translates into roughly 50 per cent of the rural population. This number fits in nicely with suggestions made by economists Vijay Joshi and Surjit Bhalla that given the problems with targeting of subsidies, the universal basic income approach should ideally be directed towards half the population. While it is likely that the finance minister would initially propose a pilot programme, given the problems with targeting, it is conceivable that the transfer might well be extended to half the rural population.
The second but more fundamental question is where the funds for this massive programme will come from, amid fiscal constraints of the government? Ideally, economists recommend phasing out of central government subsidies to pay for this transfer. In 2016-17, the central government allocated Rs 2.3 lakh crore to major subsidies comprising subsidies on fertiliser, food and fuel. Other subsidies, which include funds for interest subvention, account for another Rs 18,000 crore. Thus, total subsidies add up to Rs 2.5 lakh crore.
But these are not the only subsidies given by the Centre. Others include subsidies given on account of water and electricity pricing, railway tickets etc. As the economic survey notes, all these add up to Rs 3.4 lakh crore, or 4.2 per cent of the gross domestic product. But there are other implicit subsides the government extends, the benefits of which are often captured by the well-off households.
