Yes, Universal Basic Income. No, Targeted Income Schemes.

The Indian National Congress has announced a guaranteed minimum income for every poor person in India along with a national loan waiver scheme for farmers. The waiver is a singularly bad idea, whether for loans to farmers or to corporate magnates. But the former is an idea worth discussing.

In a March 2011 article in the Economic and Political Weekly, I had recommended a universal basic income for India, funded by withdrawing the government subsidies that currently go mainly to the better-off sections of the population. This is different from what the Congress has now proposed, partly because my idea applied to everybody, not just the poor, and partly because without a proper scheme of funding it is difficult to judge the worthwhileness of a proposal.

One problem of confining the guaranteed income only to the poor is that in India finding the real poor has always been a tricky administrative issue, riddled with malfeasance.

Right To Life Versus Anti-Poverty

Also, I look upon UBI not mainly as an anti-poverty programme, but more as part of a citizen’s right to minimum economic security, under the Supreme Court’s broad interpretation of the ‘right to life’. This minimum economic security is important not just for those below the poverty line. Large numbers of people above the poverty line suffer from all kinds of brutal economic insecurities – vagaries of weather affecting crops, market fluctuations, health risks, job uncertainties and so on. A UBI can provide some minimum insurance against such risks, without the usual incentive and verification problems of commercial insurance.

Most advanced countries have social security for workers, but the overwhelming majority of workers in India are informal and are thus mainly unprotected from those economic insecurities. Also, the overwhelming majority of adult women in India do not have any outside income, so a UBI regularly deposited in their bank account can go a long way in raising their currently low status and autonomy within the family.

Problems With Farm-Support Schemes

In recent months there has been some discussion about the farm income support programmes implemented in Telangana and announced in Odisha.

Also, land records in most states in India are much worse than in Telangana, making fair implementation very difficult. The Odisha programme is not per acre but per farmer, but the latter, in reality, can be a very slippery category in administrative identification. A UBI programme does not require such identification. It will, of course, require a bank account or access to a banking agent. Such access will improve with UBI as the fixed costs of operations of a banking agent get spread out over larger numbers. So a UBI programme should be really universal, not for only the poor or farmers, or even only for the rural sector. The latter, apart from some identification problems, may be unfair to the millions of urban poor and other insecure people.

Even though conceptually I look upon UBI as a part of the right to minimum economic security for all, I’d not strenuously object if there are unambiguously clean ways of excluding the very rich.

How To Fund A Universal Basic Income

The crucial issue, which most political party proposals evade, is that of funding any UBI programme. In my writings I have suggested three sources:

1. Withdrawing the subsidies that are mostly enjoyed by the rich and middle classes – the FY16 estimate comes to about 6 percent of GDP;
2. Taking about one-third (i.e. 2 percent of GDP) of what is labelled as “revenues foregone” in central budgets mainly in the form of tax concessions to business which, in all, come to another 6 percent of GDP; and
3. Raising more taxes on the rich amounting to say another 2 percent of GDP – levying taxes on currently exempt wealth and inheritance of wealth, high agricultural incomes, raising more taxes from currently under-taxed long-term capital gains, and land and property values in urban and peri-urban areas.

These three sources add up to 10 percent of GDP as mobilisable surplus.

Of course, there are other legitimate claims on this surplus, like more expenditure on health, education, and infrastructure. Taking that into account, if even one-quarter of the surplus can be spent on UBI, at current prices this will allow a UBI of about Rs 16,000 per household.

It is important to note that this does not touch any of the current welfare programmes.

This does not, of course, mean that the current welfare programmes do not need to shed some waste and inefficiency. It is also possible that some of the more than 900 centrally sponsored schemes are ripe for rationalisation and pruning. If some funds are saved on that account, they may add to the above-mentioned mobilisable surplus. I can also see that for some welfare programmes better governance may be more important than more money.

For example in nine of the poorest states, covering nearly half of the total population, much of even the paltry budget on health allocated to them is unspent each year.

The ‘Lazy Poor’ Canard

It is often claimed in some elite quarters that UBI will make people idle or induce them to spend more on alcohol and drugs.

The ‘lazy poor’ is an old canard the rich have used over centuries. The poor in India are often overworked, particularly the women, and I want a world in which they have to slog a little less.

In general, in a country where politicians are prone to give patronage in the form of handouts and job reservations to client groups, I’d prefer a world where redistributive and welfare programmes are genuinely universal—like UBI or universal health care or universal access to vocational training— proudly claimed as part of citizens’ minimum rights, rather than bestowed on particular client groups who come to politicians as supplicants.

I also have no illusion that the Indian rich will easily give up on the subsidies and low taxes they have enjoyed. If UBI has to be funded from that source, labour organisations—both in the formal and informal sectors—and civil society groups have to make such programmes salient parts of their agenda and actively lobby and agitate for them.

Pranab Bardhan is Professor of Graduate School at the Department of Economics at the University of California, Berkeley.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.