No more subsidies? Economic Survey advocates a ‘Universal Basic Income’ instead

Once implemented, the scheme might provide direct cash transfers to beneficiaries, to the tune of Rs 10,000 per annum

news Economy

The Economic Survey 2016-17 presented by Finance Minister Arun Jaitley advocates for a Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty, according to a Finance Ministry release.

Addressing reporters, the Chief Economic Adviser to the government, Arvind Subramanian said, “Universal Basic Income is a radical new idea; an idea whose time is right for deliberation, not necessarily for immediate implementation,” after saying “There was a pilot project in Madhya Pradesh. It should be extended.”

In October last year, Arvind Subramanian had said that a UBI scheme would mean unconditional cash transfers of Rs 10,000 to Rs 15,000 per year to the beneficiaries.

The Economic Survey says a UBI that will reduce poverty to 0.5% and would cost 4 to 5% of the GDP, if it doesn’t cover people in the top 25% of the income bracket. Currently, the existing middle class subsidies and food, petroleum and fertilizer subsidies cost about 3% of GDP.

The release states UBI is based on principles of universality, unconditionality but comes with a number of implementational challenges despite its conceptual appeal.

The Finance Ministry argues that that UBI will be more effective to reach resources to the poor; a survey of the six largest central sector and centrally sponsored schemes points to a massive misallocation of funds right now. According to the survey, people in the poorest districts in the country don’t get as much subsidy as others, since the state capacity there is the lowest.

According to the Economic Survey, there are two sets of perquisites for successful implementation of UBI.

One is that people need to have functional Jan Dhan Accounts, Aadhaar cards and Mobile phones to ensure direct transfer of cash to the beneficiary. The second requirement is the centre-state negotiations on cost sharing.

Tadit Kundu of Mint reported direct cash transfer is not necessarily a new idea and was also proposed by ex CEA Kaushik Basu in Economic Survey 2009 as a measure to bypass the bureaucracy.

However, the difference is that in this proposal, the government does not have to spend resources to identify beneficiaries with the ‘universality’ of the cash transfer.