This is the 15th post of our COVID-19 Series.
A globalized and financially unequal world has left millions across the world unemployed, undone years of poverty alleviation and has left the economy reeling from both a demand and supply shock. Now is the time to consider a UBI.
The Covid 19 Pandemic has been the single largest health crisis since the Spanish Influenza of 1918, and it may well be the largest pandemic of the 21st Century. Churchill once remarked, “Never let a good crisis go to waste”. COVID 19 is the perfect opportunity to implement the UBI and consider its impact.
As it stands the priority of the government is to ensure liquidity in the market and provide socio-economic security. Needless to say in the long term adequate measures need to be evolved to safeguard against economic shocks be it a pandemic or a global recession. To address the short term concerns the government introduced the Garib Kalyan Yojana. The government has without doubt implied the need for a UBI even if for a short term. However, the scheme suffers from certain flaws and inadequacies. Firstly, the scheme assumes that only pre existing sections of society are in need of financial support and therefore leaves out a wide cross section of individuals who have lost their source of livelihood and savings, and have no social security per se. Secondly, the scheme is an extension of existing schemes. Therefore, it not only carries with it the existing flaws of the schemes but also fails to introduce any novel measures. One such flaw is the payments to farmers under the PMKISAN Yojana which provides payment to, in many instances, an absent landlord rather than the actual tiller of the field. In this pandemic this is not just lamentable but disastrous. Lastly, the funding of the scheme is inadequate as Rs. 1.70 Lakh Crores amounts to a mere 0.8% of the GDP. It is grossly inadequate especially when compared to the financial stimulus offered by other developing and developed countries. On average, globally 10% of GDP was spent on fiscal stimulus. Further it fails to rationalize government finances in a time where greater efficiency per Rupee is of the utmost need.
WHY A UBI
First, the poor, as the economic survey 2016-2017 (The economic survey extensively covered the raison d’être for a UBI in India.) put it “have been treated as objects of government policy”. The poor in India are largely dependent on government subsidies and in turn the government adopted a patronizing attitude towards the dependent populace by the implementation of numerous targeted schemes each with the aim of concentrating on specific, albeit important necessities of the poor. This however, is a product of a narrow thought process that believed that targeted schemes were cheaper and efficient and that the ‘government knows best’. In recent times the government has continued a policy of targeted schemes enhanced with direct benefit transfers, but while also privatising what could be considered as Universal Basic Services. Ayushman Bharat- Pradhan Mantri Jan Aarogya Yojana is a case in point.
An unconditional universal basic income would potentially allow the poor to be nudged into bettering their lives without government interference or the need for a bloated bureaucracy. In the long run it will allow for the creation of choice architecture and allow citizens to exercise positive freedoms. It allows individuals to spend on goods and services, over and beyond government provisions. Liquidity in the hands of the poor would allow them to pay for goods whose marginal utility may be high though not considered essential by the state; clothing for instance or or green leafy vegetables for anemic women since vegetables are not provided by the Public Distribution System.
Second, the government simultaneously needs to ensure fiscal stimulus while reigning in its fiscal deficit which is bound to cross 3.8% of GDP especially considering the extra budgetary expenses the government in the form of loans for the National Small Saving Fund has incurred to fund the Food corporation of India. Numerous government schemes have contributed to greater ponderous and opaque logistics. A close inspection of Umbrella schemes reveals that there are nearly 950 central sector and centrally sponsored sub-schemes in India accounting for about 5.7% of the GDP by budget allocation as of 2019-2020. According to the Economic Survey 2016-2017 despite JAM (Jan Dhan, Aadhar, Mobile), leakages and misallocation still persist due to complex background procedures. In fact according to the survey two-third of adults own Jan Dhan bank accounts but only 40% of them were active, with accounts held by women being even less active. This is not to say that no advancement has been made but rather the full potential of the scheme cannot be realised due to the nature of the system within which the DBT works. The government therefore needs to undertake a review of its subsidies and instead focus on creating an extensive social safety net with minimum leakages.
Rationalization of existing non essential schemes and services would allow the government to channel funds into the UBI. An UBI which is elementary in all aspects of logistics and execution would realize its end objective; to deliver a sustainable income or part thereof with minimum redtape and maximum accessibility. Since universalization and standardization lead to fewer logistics. The savings on soft infrastructure and reduced leakages might even provide additional funds for universal basic services. The spillover from providing socio-economic security to all would be an invaluable consequence in the long run.
Third, universalisation keeps costs low and reduces exclusion error. It enabled Chhattisgarh and Tamil Nadu to reduce leakages in their public distribution system. A comparison may also be drawn between Rythu Bandhu and the KALIA scheme. The Rythu bandhu scheme of Telangana resorted to granting cash transfers to landholding farmers instead of all who tilled the land, such as landless tenants who compose a sizable portion of farmers, because identifying real tillers of the land was a logistical nightmare. On the other hand the KALIA scheme of Odisha deals with this issue by simply awarding the cash grant to all regardless of possessing land holding or not. The Andhra Pradesh government too has provided universal handouts to farmers regardless of landholding under the YSR Rythu Bharosa scheme. State governments have realised that an inclusion error is preferable to an exclusion error.
Lastly and most importantly, the pandemic has shown how important the ability to absorb shocks is for a social security system and the economy. UBI in a free market welfare state plays a crucial role in absorbing shocks such as those from pandemics and the accompanying recession. Without a doubt it may be said that states must globalize, the world’s economic prosperity and even world peace to an extent have been guaranteed by a quickly globalizing world. At the same time it must also be acknowledged that globalization is not a godsend and comes with its fair share of issues such as pandemics, global recession, disruptive new ideas and social practices, and structural shocks. Citizens must therefore be insulated from these shocks in a rational, cost effective and liberitarian way. This is an objective well suited for a Universal Basic Income Scheme accompanied by rationalised universal basic services.
NATURE OF A UBI
A proposed scheme must firstly, necessarily retain its ‘universal’ nature since the purpose is to create a viable safety net not only for those below the poverty line but also for those who have been exposed to financial misfortune and lack social security especially in a post COVID 19 world. As to the question of the top 20% is concerned, the state may prefer an ‘opt out’ system and coerce them to opt out or as the economic survey 2016-2017 phrased it “De jure Universality, De facto Quasi Universality.
Furthermore, to keep the scheme universal it would have to be an unconditional cash transfer i.e it should not be dependent on the individual or household completing certain tasks to be entitled to the cash transfers. It is also important that considering the issue of logistics and inequalities persisting in Indian society the cash transfer must be made to the individuals rather than to the household so that individuals can not only access their own cash transfers but also be financially independent, especially women.
It must not be conceived as a measure to compensate for the lack of capability and capacity of Universal Basic Services (UBS) but as extraneous to such services. In fact it has been pointed out that privatisation of basic services leads to large scale exclusion of the subaltern. Lastly, the scheme must be elementary in all aspects of logistics and execution.
It can safely be said that universal basic income is without doubt a step in the right direction. This pandemic must serve as a wake up call for future contingencies. For India, the gains of the spillover will passively generate wealth and actively shield against losses. The state must act smartly, efficiently and must strive to attain equilibrium between society’s needs and fiscal responsibilities. Regardless of how we implement or whether we even implement the UBI, Franklin Roosevelt’s words must reverberate in our minds: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
The author is an Advocate and a former LAMP Fellow
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Categories: COVID-19, Legislation and Government Policy