Universal Basic Income Shoots in the Wrong Direction

The latest Economic Survey released this month introduces public debate on a radical new idea: the proposal is to roll out Universal Basic Income (UBI) across India - a guaranteed minimum income for all individuals (or, as the Economic Survey concedes in the Indian context, at least 75 per cent of the people).

The survey points out that a basic income scheme would help plug leakages in India’s byzantine welfare system, replacing most targeted schemes with a basic income that would allow citizens avail those goods and services for themselves.

This makes some economic sense. A basic income scheme would be far easier to implement than the targeted welfare system that India currently has. There would be far less bureaucratic cost involved in identifying recipients and monitoring would be much simpler.

It is also less paternalistic, as the survey itself points out, “by providing support in the form of cash transfers to respect, not dictate, recipients’ choices”. In addition, it would replace the current focus on households with a more direct focus on individuals.

The survey talks of how this would be particularly useful in empowering women, whose consumer choices are currently dictated by the men of the house.

For all its benefits, however, a basic income scheme would not be India’s best shot at getting rid of poverty. Many economists rightly argue that a poorly calculated basic income might serve as a deterrent to a young Indian labour force. But that’s not even the half of it.

In an insightful critique for The Wire last week, two academics at the Jawaharlal Nehru University pointed out that India’s real concern is the worrying trend in its social spending. “India’s expenditure on health and education is much lower than some relatively poorer regions of the world,” they wrote.

“For instance, Sub-Saharan Africa, Nepal and Bhutan are ahead in terms of health and educational allocations. Large countries like Brazil and China fare much better than India.”

In 2015-16, India spent a miniscule 0.25 per cent of its GDP on health. That figure improved only marginally to 0.28 per cent in this year’s Budget. Spending on education, meanwhile, has gone down from 0.49 per cent to 0.47 per cent. The authors conclude: “The countries that India is supposed to be emulating by moving towards UBI spend many times more on these basic public provisions.”

The fact that India’s public spending on social services has long been inadequate is all the more alarming, considering that it is given little prominence in public or political discourse.

Poverty in India is made worse by the fact that children born into low income households struggle to find access to quality education or healthcare - elements that would allow them develop the skill and ability to find meaningful employment in the market economy.

While some argue that basic income might allow poorer households to afford education and healthcare, this merely pushes off the problem to a private services sector that is often non-existent in the poorest parts of India. Basic income might allow individuals greater latitude as consumers; but it cannot serve as a substitute for public services.

A basic income replacement for India’s current welfare system also has other fallouts. Some welfare schemes are meant to provide specific goods and services, aimed at developing India’s human capital. Food subsidy schemes, for instance, are meant to ensure adequate nutrition for Indian households.

Rural employment schemes were rolled out to provide temporary employment for the poor, while simultaneously creating public assets. Granted, some of these schemes don’t always achieve their purpose, and many are plagued by leakages that cost substantial tax money.

But these are often because of flaws in the bureaucratic system, not always because of flaws in the schemes themselves. An inefficient bureaucracy also perpetuates poverty in some regions, because it impedes access to vital public services, including roads, schools, hospitals and electricity - problems that cannot be overcome by a basic income scheme.

That is why several reports over the years have repeatedly pointed out that welfare schemes have typically worked better in places where grassroots governance institutions - panchayats and municipalities - are better equipped, skilled and more efficient in implementation.

If India wants a shortcut to its poverty problem, it ought to consider fixing its public services system. That means increasing expenditure on critical sectors such as education and health, and enacting much-needed bureaucratic reforms to increase the functionality and accountability of local government bodies.

Countries which are currently running basic income schemes in some form (Canada and Finland, for instance) do not typically suffer from these institutional problems. They offer basic income more as a replacement for social security spending, not to supplement or substitute public services.

In India, universal basic income would shoot in the wrong direction.

(c) 2014-15, India Today Group