Universal Basic Income: Why Universal Basic Income is a bad idea–Economic Times

A UBI offering even poverty-line income will cost maybe 10% of GDP, and the entire net revenue of GoI is barely 8% of GDP.
Ten million farmers have received their first instalment of Rs 2,000 under the PM-Kisan scheme, and will receive Rs 6,000 in a full year. Meanwhile, Rahul Gandhi has promised a minimum income for all if elected. Many experts believe India is on track to a Universal Basic Income (UBI).

This has long been advocated by economists such as Pranab Bardhan and Vijay Joshi. Arvind Subramanian, in his Economic Survey in 2017, predicted that India would move towards a quasi-basic income. He now declares it is an idea whose time has come.

I disagree. Politicians will surely hand out cash, just as they have handed out freebies in the past. But the benefit will not be universal, but targeted at specific votebanks. And the sums involved will be modest, not remotely enough to live on. You could call this universal pocket money, but not a basic income.

Theorists say every citizen should get an equal national dividend. But giving Mukesh Ambani and the poorest beggar the same benefit looks both silly and unfair to politicians and voters. Targeted transfers make political and moral sense. Cash transfers to the needy are desirable, but not equally large transfers to the rich.

Rahul Gandhi’s promise of topping up the income of every poor person sounds like a guarantee of a poverty-line income. But will poor people below the poverty line work at all if they get the same income regardless of whether they work or not? No, the scheme has not been thought through. It looks more affordable than UBI, being targeted at the poor.

The World Poverty Clock suggests that barely 6% of Indians are below the World Bank’s poverty line of $1.90 aday at purchasing power parity. In practice, enormous difficulties and scams will arise in estimating who is poor. If village sarpanches are asked to certify incomes -they already certify caste status – then for a small bribe, they will certify virtually everybody to be poor, making a mockery of the scheme.

UBI has been advocated by thinkers from the extreme left to the extreme right. The leftists say it will add to the long list of human rights and entitlements, as a dividend to all for being shareholders in the nation. On the right, Milton Friedman saw UBI as a way of eliminating a host of badly conceived and targeted subsidies and replacing them with a single cash grant.

India’s realpolitik makes both visions impossible for two reasons. First, politicians want to offer a plethora of freebies targeted at different votebanks, not a single large cash grant to everybody. Second, a UBI offering even poverty-line income will cost maybe 10% of GDP, and the entire net revenue of GoI is barely 8% of GDP.

In theory, non-merit subsidies could be abolished, freeing funds for UBI. In practice, politicians dare not eliminate existing freebies, and keep expanding the list. Before the 2018 state election, economists praised Telangana chief minister K Chandrashekar Rao for offering a cash grant of Rs 8,000 per acre per farmer, rather than a loan waiver (as the Congress was doing).

They said a cash grant was economically more efficient. But now Rao has offered a loan waiver as well. Lesson: cash transfers will be in addition to — not in place of — other freebies. Indian democracy creates competition between parties in offering freebies, subsidies and quotas. So, the list of freebies keeps expanding, leaving no fiscal space for grand new schemes like UBI.

In Tamil Nadu, J Jayalalithaa won the 2017 state election. Her promise of new freebies included free cellphones for ration card holders; free laptops with internet connections for Class 10 and 12 students, maternity assistance of Rs 18,000; maternity leave increased from six to nine months; 100 free electricity units every two months; waiver of all farm loans (at a cost of Rs 40,000 crore); fisherfolk assistance to be hiked to Rs 5,000; women to get 50% subsidy to buy mopeds or scooters; an eight-gram gold coin for women getting married; a free ‘Amma kit’, including sanitary napkins; and much more.

Even before the election, Jayalalithaa already provided 20 kg of free rice per family, a free mixer-grinder and fan per family, subsidised ‘Amma kitchens’, subsidised goats or cows for rural families, and much else. Note that most freebies are targeted at one votebank or another: farmers, women, students and so on. Any marketing expert will tell you that to gain market share, targeting specific market segments works much better than simply cutting prices (a way of universalising the benefit).

Despite intense competition in freebies, politicians have managed to keep the overall fiscal deficit under control. This shows remarkable ability to choose freebies that will not bust the exchequer. So, in coming years, expect many headline catching cash transfers. But expect them to be modest in size and limited to certain votebanks, making them fiscally manageable. This will be competitive Indian politics as usual, not an unstoppable move to UBI.

via Universal Basic Income: Why Universal Basic Income is a bad idea

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