India has always firmly held its ground as a welfare state. Since independence the country has undertaken projects aimed at improving the health, nutrition, and education levels of its citizens. Such projects have included a heavy dose of direct government intervention, in the form of Direct Benefit Transfer subsidies and others. A paradigm shift in Indian welfare came in 2006 when the government launched the National Rural Employment Guarantee Act, later called MNREGA. In this scheme people from the rural areas were offered a guaranteed 100 days of wage employment for Indians in rural areas. While the jury is still out on how MNREGA has changed the rural landscape, it cannot be denied that some areas have indeed prospered with the implementation of the scheme.
It is against this backdrop of history that the question of Universal Basic Income in India must be addressed. Universal Basic Income or UBI essentially means that each citizen would be given a certain amount of money as income on a yearly basis. Such ideas are being discussed because new disruptions in the global economy, like migration and automation, threaten to take away traditional wages from a large number of citizens. The idea of implementing UBI in India has caught the imagination of policy analysts and general observers alike since the announcement by the chief economic advisor that there is a plan to devote a chapter to UBI in the forthcoming economic survey. While some commentators have opined that it would indeed be a welcome step, others have reasoned that the same would result in a further fiscal burden on the already weakened Indian economy.
Yet the idea of UBI cannot merely be reduced to an argument of “for” or “against.” UBI invokes a fundamental question as to what kind of welfare state India sees itself as. Before tackling the question of UBI, one must analyze how much India spends as a percentage of its GDP on health and education. According to World Bank data from 2014, countries around the world spent on an average 5.99 percent of GDP on health expenditures. For India, the same figure stood at 1.407 percent. According to the same World Bank study, global average expenditures on education stood at 4.5 percent of GDP while India spent 3.8 percent of GDP. Clearly, in terms of GDP percentages, India spends less than the global average on health and education.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
However, this does not signal a non-commitment toward these issues, but rather the lopsided nature in which investments are made. A large part of the expenditures made by the government are in the form of revenue expenditure — salaries, pensions, and subsidies –while capital expenditure (infrastrucuture upgrades, for example) has often taken a backseat. Global evidence shows that investments in capital expenditure have produced far greater returns than revenue expenditure. Yet, despite low expenditure rates on both health and education, India has produced phenomenal results in improving both its health and education indicators. With almost 100 percent primary level enrollment in the offing, governments have now shifted their focus to the quality of the outcome as well, a fact demonstrated by the repeated stress on the annual Pratham Annual Status of Education Report (ASER) survey.
If UBI is launched in India, an important question to be addressed is how it would be implemented. Would UBI be launched in lieu of all subsidies or program investments made by the government, or will it be an added component? The pitfalls of both approaches are quite evident. If UBI is to subsume all other expenditures made by the government, then the basic infrastructure and facilities (especially hospitals, schools, and roads) have to be improved first. As of today, India has one of the highest out-of-pocket spending rates on healthcare across the world. The government has to ensure access to education and health to all citizen at nominal prices if these programs are no longer to be subsidized. Under this approach, before implementing UBI itself, the government would have to make a massive investment in developing its infrastructure. On the other hand, if UBI is launched merely as an appendage to already existing schemes, then it would only become a major fiscal burden for the government.
A middle path would be to remove all education and health subsidies and give the money directly to the people. With the recent spur in digitalization and stress on banking, this could prove a viable tool. It would, however, carry its own complications in terms of which schemes should be subsumed and which should not.
The second issue would be the issue of targeting. Surely in a large country like India, not all citizens need or should be provided with a UBI. Then it would be important to decide what the baseline for such a UBI would be. Would it be socioeconomic status, calculated on the basis of the last conducted socioeconomic census, or the poverty line calculated on the lines of the Tendulkar Committee, or something else entirely? This also raises the debate of targeted versus non-targeted schemes. Social scientists have often opined that universal schemes in the true sense have often worked better compared to targeted schemes. A possible solution could be people voluntarily opting out, along the lines of the current LPG scheme. Such an effort would undoubtedly require the government to give a positive nudge to citizens.
Global efforts toward UBI have shown divided results. In 2016, the citizens of Switzerland voted comprehensively against the implementation of a UBI scheme. Finland, on the other hand, launched a pilot UBI recently. The two-year pilot scheme will provide 2,000 unemployed Finnish citizens, aged between 25 and 58, with a monthly basic income of 560 euros ($581.48), which will replace their other social benefits. These citizens will continue to receive the basic income even if they find work. Scotland too, has announced intentions of putting a pilot UBI in place. Currently, however, there’s no convincing global evidence for or against UBI schemes.
Proponents of various welfare schemes within India have often argued for their proposed policy on the basis of social experiments carried out within a district or a town where the scheme has been successful. Yet they must realize that a “one size fits all” policy has often failed in India because of the country’s diversity. Small pilot successes do not signal readiness for an all-India implementation. At the same time automation, less job growth, and a burgeoning youth population are social realities as well. If youths are not offered employment, the government has to ensure that they are taken care of or face a serious social problem in the long term.
It is in this respect that UBI must be understood and implemented, if it is to be acted upon. UBI cannot be a remedy for all problems, but if implemented right, it may be able to provide certain answers.
Ibu Sanjeeb Garg is an avid follower of Indian policy issues. He also looks at ethnic tensions and their dimensions in India’s Northeast. The views expressed here are personal.