Let this budget scorch the earth

We heard about Universal Basic Income in 2015-16 Economic survey which had laid out the overarching strategy of JAM -Jandhan, Aadhar, Mobile. (If you haven't read it, please read it here.)

The strategy was like any household to increase income while simultaneously plug leakages and therefore create some savings and distribute it back into the system as Universal basic income.

Increasing Income

Increasing income meant

1. Growing taxation base : So that more people fall into the tax bracket. This was done by making tax filing simpler as well as including technology in governance.
2. Creating Tax reforms like GST: So that the indirect taxes become more formalized and transparent and the Tax base from businesses grows.
3. Overhauling company law and create more transparency in corporate structures so that corporate tax is clearer.
4. Enforcing tax compliance using raids and big data

Plug leakages and create savings

The broad strategy for plugging leaks in subsidies and other expenses from the government depended on

1. JAM :- Identifying the person correctly via aadhar card. Making the mode of cash transfer directly to the user using technology thus removing middlemen. Making technology, connectivity reach every corner of the country and become the interface of governance, education and sometimes verification.
2. Indian Bankruptcy Code: So that bank earnings stuck with sick corporates flow back quickly into economy and is rotated faster out to other businesses increasing corporate incomes and taxes
3. Ujjwala and other schemes: To reduce subsidy from the non-needy and redirect it to the needy increasing spread of resources.
4. Demonetization: To bring locked currency back into accounts and therefore kind of recapitalize the banks. This money could again be lent out to businesses.

Economy did become transparent

The overall idea being that if the economy becomes transparent, then it will lead to growth and savings and we (The country) will have enough to implement schemes which benefit the poor like MNREGA, Canteens, Health insurance etc.

And it indeed helped. The tax base expanded, money flew back into banks and all the frauds flowing through the system were detected and surfaced. This in turn made bankers sit up and the RBI could dole out the right medicine to make banking stronger.

Bank frauds like PNB or defaults like IL&FS were too easy to brush under the carpet without these systems. These costs would have been silently passed on to people in various ways with no one ever realizing.

Part of the vision is already on track, we need more

The impact of above can already be seen with schemes like Ayushman bharat. It doesn't matter whether states implement it as is or they implement it as some other scheme, but a large part of Indian population has been promised health insurance.

Any government scheme has always had hiccups. But we have seen that if the vision is cleared, bureaucracy has taken time to iron out the kinks and implemented it. A grand scheme of every Indian having health insurance will therefore be realized. Most of the schemes before now had suffered the problem of grand vision and empty pockets. This time the pockets too have been sewn up to some extent. A growing GDP will make sure that they remain full.

The next step should be Universal Basic Income

All the steps towards UBI are almost completed, except that our earnings as a nation still hasn't. But i feel that its a matter of 3-4 years before the GDP and tax levels reach a stage where we can assure food, education and healthcare for all.

Provided the reforms done to date stick and are not rolled back. Provided the successive governments don't treat the budget deficit (difference between what government earns vs spends) as their personal piggy bank to spend without thinking of earning more. I write this because this has happened.

In 2008-9 then Finance Minister Pranab Mukherjee had decided to widen the deficit from 2.4% to 6% to fund various schemes in his interim budget.

A popular mandate doesn't give any party the right to plunder the future of the country to finance its ambitions or electoral promises.

Suggestion for the upcoming interim budget

But this time, i would propose the government to follow a scorched earth policy in the interim budget. It should announce the Universal Basic Income and at the same time also fix the budget deficit.

Simply saying that if two political parties are claiming to care for the poor, let them put their money where their mouth is.

Create a budget which promises UBI and also locks the budget deficit. We already have been putting the structure in place since last few years.

Whoever gets elected the next term, will have to earn the money to fund the UBI. And this money can't be earned without proper governance. The only challenge is that a populist party can come in and take foreign loans to fund it, but then the opposition can make sure that they don't win a single state election after that.

Promising a Universal Basic Income or Minimum Income guarantee is very easy. Doing this using proper governance is difficult. If any government comes in, who doesn't have the well being of the people at heart, will find staying in power increasingly difficult due to judiciary and the executive.

Let the challenge be fixed before the elections are announced and then lets see who takes it up and who executes it. And if the government is doing its job, who cares which party has formed it.

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Disclaimer: The views expressed here are my own and don't reflect the views of any of my employers present or past

Satyarth