Economic Survey: How would a universal income for every Indian actually work?

Although focus may have been on its Gross Domestic Product predictions and how it engages with demonetisation, the Economic Survey’s big conceptual proposal is a Universal Basic Income. The report, authored by Chief Economic Advisor Arvind Subramanian and tabled in Parliament on Tuesday, examines the various possibilities connected to providing every Indian with a minimum income and concludes that the time is ripe for a “serious discussion” on UBI.

The Survey even leans heavily on Mahatma Gandhi to sell the concept, quoting his famous talisman that policy should target the poorest and weakest, while also engaging with Gandhi’s belief that charity encourages “laziness and even crime”.

So what exactly is the Economic Survey suggesting here?

What is a Universal Basic Income?

A UBI would mean every single individual, regardless of their identity or economic status, is guaranteed a monthly income, transferred directly into their bank account by the government every month. It has three key components: universality, unconditionality and agency – the last condition as a way to give people a choice in how to spend the transferred money.

What is the case for UBI?

The Survey argues that India’s current system of subsidies, including about 950 central sector and centrally sponsored schemes, lead to a huge amount of inefficiency in leakage, particularly because they often don’t reach the poorest and most vulnerable. A chart from the chapter on UBI points out how districts with the highest number of poor people don’t get a proportional amount of welfare subsidies, suggesting a misallocation of funds.

By being universal, UBI gets rid of this problem altogether. If implemented, it would mean putting money directly into everyone’s accounts, meaning the government will have to spend less time on identifying whom to target and making sure the subsidies are not lost in the delivery. It also allows people to spend the subsidy in whatever way they prefer.

What is the case against UBI?

The Survey lists a few conceptual problems with the UBI, like whether any scheme should be unconditional and how the money given might end up being spent on wasteful goods, like liquor and cigarettes, rather than on food.

But above everything else, the big difficulty with a UBI would be the cost. Paying for even a small income to every individual every month would require a massive outlay in the Budget, and most likely mean money taken away from other schemes.

Added to that is the huge political cost of such a move. Implementing it might not be popular, since “universal” means giving as much money to the rich as the poor. But once implemented, it would be an even bigger liability if it is not successful, since withdrawing a universal income would be too unpopular a move for any political party to consider.

So, what would it actually look like?

Moving away from the conceptual questions, the Survey gets into some specifics. First, it calculates how much the basic income should actually be. Starting with the aim of lowering poverty to just 0.45% of the population, from the 22% recorded in 2011-12, the report uses consumption figures and the poverty line to calculate that the income would need to be Rs 7,620 for the entire year of 2016-’17.

Presuming it would not be entirely universal – that is, for various reasons up to 25% of the population doesn’t actually get the income – that turns into a cost equivalent to 4.9% of India’s GDP.

Where would the money come from?

The Survey is quite clear about this: The money would come from other subsidies. It lists out what is referred to as “middle-class” subsidies, such as the LPG subsidy, Railway fares, income-tax subventions and so on, as well as the government’s largest social-sector schemes, including welfare programmes for food, fertilisers, petroleum, education and other. The Survey suggests that many of these schemes, which together amount to between 1% and 6% of GDP, depending on which ones are included, can be instead be replaced with the UBI.

What are the other problems?

The report points out that, while many academics and economists support the idea of a UBI, paying for it by replacing other schemes might be deeply unpopular, among both experts and the wider public. Next, a direct transfer scheme would also need the money to directly go into the accounts of the individuals – which leaves out all of those who still are not in the financial system.

The system might not be equipped to handle the millions of people who would need access to bank accounts, as was witnessed in a pilot experiment in Puducherry. And given the amount of money that will be transferring through the system, the report acknowledges that it might aid the corruption instead of cracking down on them.

Where does that leave UBI?

“If, as appears to be the case, that thinkers on both the extreme left and right have all become its votaries, then UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion,” the survey says.