Is it time for India to go for Universal Basic Income? Or is it too early

Universal Basic Income

The world is opening up after the pandemic. As we rebuild our economies, this is humanity’s big chance to reshape economic structures, and ensure we implement the learnings of this phase by ensuring a dignified living for all of us. Often the idea of UBI starts taking shape in some form or the other. Today I am want to this chance putting across various perspectives revolving around the topic.

What is Universal Basic Income (UBI)? It is an income which you get just by the virtue of being a citizen of a country without doing anything literally.

What is the idea all about?

The past 30 years have seen fundamental changes in Global Economy. After 1980s, as the world started globalizing, which started with financial globalization, it integrated all the economies of the world. This was good – free trade, free movement of labour, capital, technology, ideas. Fantastic. A lot of prosperity has come in the world. There is no second thought about it. But it also led to a lot of problems, which are visible now by looking into various reports and by recent agitations.

Concentration of wealth is so profound now. Concentration of – administration, power, money and opportunities have been quite remarkable, whose fallouts are naturally negative.

Technology penetrated in almost all sectors, and because of that a lot of automation happened. And now Artificial Intelligence is the next level of intelligent automation. Due to all this, the traditional jobs slowly started reducing in numbers. Unfortunately, the skilling and education sector worldwide, including Europe and US could not cope up. India’s situation is more grave. We could not really skill people or reskill people to take up new economy jobs.

So, it finally culminated and resulting into a new kind of politics worldwide in response to the above crisis. The challenges are worldwide - Huge concentration of wealth, Growing automation, Reducing number of regular jobs, more temporary jobs with no stability, reduced chances of re-skilling effectively.

Today, there are real risks of social instability everywhere, as manifested in some political changes we see around us. The Universal Basic Income is a response to the universal crisis.

The robot-to-worker ratio is rising rapidly in factories around the world. In Korea, it is 4.78 robots per 100 workers, while in Japan it is 3.14, In Germany its 2.92, In US it is 1.64 and in China it is still 0.36. Globally, the figure is 0.66.

If this trend continues, then where will people go? Where will they get jobs? Today, there are certain examples of complete industries which have emerged which are fully automated, and there are CNC machines and robots, and there are just 2-3 people at the top running the whole factory.

This means, that the traditional jobs are getting wiped out. There is no problem in this. Technology will move forward. This is the destiny of technology. The question is where will the people go? If we are not able to create options to people, they will lead to social instability. This is a problem worldwide, not just in India.

Developing World is most at risk, where social safety nets are not very strong – In Ethiopia, 88% jobs are at risk, In Nepal the percentage is 80%, for China it is 77% and for India 69% jobs are at risk. The Global average is 57%.

This doesn’t mean the jobs will vanish tomorrow. What I am saying is that in the next 4-5 years, large scale landscape changes will happen, and we have to be prepared for it.

UBI as a response must be seen in this context.

The problem of automation is bigger than manufacturing. In Insurance Underwriting sector, 99% jobs are at risk, In farm labour the percentage is 97%, In Construction labour it is 88%, while 79% of Truck drivers are at risk.

If we have accepted technology, we have to accept the jobs erosion rate caused by it. Hence UBI.

Curse of the Working Class: Research shows that better paid jobs, which generally correlate with higher education levels, are less likely to face displacement by automation. But there is no guarantee that this advantage will last long. The White House Council of Economic Adviser says that there are 83% jobs which are at risk for workers below $20 hourly wage, while the same percentage is 4% for workers will more than $40 hourly wage.

The highly educated, most skilled workers cannot be replaced immediately because of the mental faculty they possess. This is not so easy for AI or deep learning etc, while to replace blue collar jobs is quite easy.

And from here the concept of UBI is born.

Some years ago, the Economic Survey of India (prepared by ex-CEA Arvind Subramaniam) spoke of a Universal Basic Income for citizens. So, what exactly is UBI? The idea is that every man has a right to a basic income to cover needs, simply because they are citizens of India. The Economic Survey looked at UBI as an alternative to social welfare schemes aimed at poverty alleviation.

For the first time someone was bold enough to include a chapter on UBI in the Economic Survey. UBI is a very radical idea. This involves consolidating hundreds of social schemes being currently run by the government and converging them to UBI. Both cannot be run in parallel since the government doesn’t have the fiscal space to run both of them together. Hence, by nature this idea is massively disruptive. I am absolutely certain that in the coming months and years, this is going to be a big topic of discussion everywhere.

Now, Sikkim is all set to launch it soon, on an unconditional or universal basis! The state wants to launch it by 2022. They want to have unconditional cash transfer to citizens. In Sikkim it may be possible because Sikkim has a literacy rate of 98% and its monthly per capita expenditure in rural is Rs 1,444 and for urban it is Rs 2,500. The BPL percentage has come down from 40% in 1994 to 8% in 2012. Also, its hydro electric power could be the main catalyst behind its success, if any.

Who supports such idea?

Much to my surprise when I started looking at it, though at the very beginning I was thinking that UBI will make people more lazy, it is going to introduce a certain moral hazard and people will become inefficient and extremely lethargic. But there seems to be a near across the spectrum support for this idea.

Technically, both the Left-leaning and right-leaning thinkers find good points in UBI. The Left-Leaning thinkers say it fosters social justice and equal opportunities to citizens while right-leaning thinkers say it restores individual choice and freedom, and reins in the State. All those who find large-scale welfare schemes wasteful and not focused (due to leakages etc), support UBI. Because in UBI, once a person is identified, then you don’t have the tension of day-to-day operation. In India, even for Mid-day meals, 15 Cr children are given hot meals. Leakages and inefficiencies are bound to happen in such mammoth social schemes. In UBI, identification of beneficiaries is the core challenge, not operational issues like these.

States like Finland conducted a 2-year experiment on UBI’s effect on unemployed people starting 2017. Ontario, Canada rolled it out on an experimental basis in the form of unconditional income guarantee. Netherland’s cities have launched municipal level trials. Barcelona in Spain tried out changes to anti-poverty program, including UBI. In Madhya Pradesh too, UN agencies tried to experiment UBI.

It is only after we have seen multiple experiments worldwide, right from a village in Madhya Pradesh, to a municipal level in Netherlands to a country level in Finland, a general consensus is arising that UBI is not a bad idea.

The scheme in Finland, the Kela scheme, has been hugely successful. Some big names have spoken in favour of UBI from time to time like Martin Luther King Jr, the great Civil Rights Activist in America and Bertrand Russel, the great British Philosopher of the 20th century.

How UBI will work?

Without the need to work, or the desire to work, a UBI offers periodic, regular, direct cash payment to individual citizens. It works on 5 principles – Not one-off grants, but regular payments, no food vouchers or service coupons etc but direct cash transfers, universally applicable, payments made to individual citizens, and an unconditional payment.

Some of you might be thinking what am I talking about. By doing this, the government will go bankrupt. My answer would be don’t underestimate the power of UBI. We will discuss all the challenges as well.

So, to get the funds to run a UBI scheme in India, we need to focus on 4 things – Scale of the project, Quantum of income (to be transferred), Source of funding for the UBI, Cuts in other subsidies incomes and transfers (which today take away close to 5% of the GDP).

To get this scheme run in India, we need to build the data integrity. The CSO and NSSO will have to prepare the databases. Without this, even discussing about UBI will not be appropriate.

The India Case

Poverty in India has been reduced substantially from 1947 to 2021, through several schemes. There is no doubt about it. Successive governments starting from Pt Nehru government of 1951-52 to the Modi Government of 2021, continuously poverty alleviation programs have been run, some might be more successful than the others, that’s a separate point. But the attempt to root out poverty has been an integral part of all the governments in India. This may be because the complete political economy and electoral politics is linked with this. Although we could not do it at the scale which China was able to do, after Deng Xiaoping, still post 1991 reforms, substantial improvement can be seen.

Tendulkar Committee estimate tells us that it went from 70% of population in 1950 to 21% in 2012. The problems in current social schemes are – leakages, manipulation, exclusions, inefficiencies, corruption. Thousands of crores are simply wasted. This is the taxpayer’s money and from natural wealth.

A UBI system promises an uncompromised social safety net – a dignified life for everyone. If a person thinks that once he gets ill how he will get money for medicines, how can he have a dignified life. He will always be in stress. For a dignified life, it is required that the most fundamental necessities and essentials of life are protected by the system. Why UBI is so appealing nowadays? Huge turbulence due to globalization, changes due to technology, and automation.

In India, the annual cost of giving Rs 1500 per month to 20 Crore people will be 3.6 Lakh Crore. This means we will have to shut large subsidies; else this is not possible. The 2011 census has enabled us to do targeting. Due to this, it seems that we will be better equipped to arrest leakages. According to 2011 census, if we include 16 lakh most deprived households and 87.3 lakh deprived households, the government will need Rs 1.6 lakh crore to give Rs 1500 per month to these 88.9 lakh households.

Why Sikkim is ideal? Sikkim is a surplus power generation state that exports 90% of 2.2 GW hydel power. Hence it has a steady revenue stream, which many other states lack. Its literacy rate is 98% and has a very small below poverty line population. It may subsume all other schemes before any UBI is launched.

India overall has 950+ central sector or centrally sponsored schemes, which takes up 5% of the GDP. Top 11 schemes like PDS or ration shops (food subsidy), urea subsidy and MGNREGA consume 5% of the budget allocation. If we include state schemes, the number is much bigger. This means that UBI can happen only if these schemes are tremendously rationalized.

Now, there could be a question in your mind that if we rationalize the schemes, will people be able to get these services which they are getting currently with this money? Let us try to find this out.

Practical Problems in India

The income disparities in India may make it very difficult to implement UBI. Income disparities across states and within societies will create design level issues. Sikkim is workable, but UP is not. Looking at these challenges, the World Bank has suggested India “Progressive Universalism” – a step by step approach. In addition, conditional access is needed to ensure priority for the lowest earners., so that they are not left out in the process. ?Perhaps PM Kisaan is a step towards this direction.

There are some risks involved by implementing UBI – big schemes like Mid-day meal, PMGSY (Pradhan Mantri Gram Sadak Yojana), NHM (National Health Mission), PMAY (Pradhan Mantri Awas Yojana), SSA (Sarva Siksha Abhiyan), MGNREGS (Employment Guarantee Scheme), PDS (Public Distribution Scheme or ration shops) cannot be simply scrapped. Today, 15 crore children In India upto standard 8th get hot, cooked meals each day. Will UBI money be sufficient and used for children’s food, will there be gender biases wherein the male spends the amount on alcohol? These are the big questions. What will replace these services? Only cash transfers may not be only guarantee that services will be available too.

Is UBI relevant for India? Yes, if social welfare schemes run along with UBI, and not as an alternative. If a poor couple who has a school-going son and a daughter start getting UBI, will they pack cooked meal for their kids to school? If the answer is yes, then we can stop the mid-day meal scheme, if the answer is no, then we cannot stop the scheme. This means there is a lot of introspection of the society which is needed before adopting such radical changes.

India’s poverty line is flawed. It excludes many who are in need of it. So the UBI in India should be universal and not only for LIGs. Recently, the government has failed to increase the pension amount for the beneficiaries of the Pension scheme. From a measly Rs 200 to Rs 500 must be done. A thorough study and rectification of the poverty line is a must.

Summary

The Good: With UBI - Exclusion errors will be minimal, beneficiaries will have cash to spend rationally as per their personal choice, poverty is reduced directly by cash transfers, once multiple schemes end administrative efficiency goes up.

The Bad: With UBI – Inclusion errors can be high since the affluent are also included, moral hazard of people becoming lazy and inefficient can be there, gender disparities may mean men controlling spending, market dynamics may increase or decrease the spending power of cash.

Before signing off from this topic for now, I would leave with the below two quotations:

“I am now convinced that the simplest solution to poverty is to abolish it directly by a new widely discussed measure the guaranteed income” – Martin Luther King Jr, Civil Rights Leader, Activist

“A certain small income, sufficient for necessities, should be secured for all, whether they work or not.” – Bertrand Russel, British Philosopher.