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Universal basic income: A potential Brahmastra for Modi government

The Financial Express logo The Financial Express 28-01-2019

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(Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not represent the views of MSN or Microsoft)

With just about six-eight weeks to go before the code of conduct for India's general elections due in April -May 2019 comes into force, the BJP-led government would be facing a serious dilemma. It has the option of announcing some big-ticket schemes, with conspicuous, near-term benefits for the targetted population. Else, if the government is feeling confident enough, it will approach the elections with its current scorecard. However, the initiation of some reforms with potential gains only over the long-term are unlikely to cut ice in the pre-poll season.

This dilemma, understandably, would have grown larger for the BJP after the electoral reverses the party suffered in the recently-held Assembly elections in key states. In the run-up to these Assembly elections, there were four key factors (perception that "upper caste" voters were unhappy; anti-incumbency; the narrative of rising unemployment; and farmers' woes) that got highlighted — these may have some relevance for the upcoming general elections, too. The ruling party may be right in its assessment that the first factor has been put to rest after the promulgation of the new law providing 10% reservation in jobs and education for —economically weaker sections —from the general category.

On the second factor, only one uninterrupted term in power (as is the case with the present BJP-led government at the Centre) should not spur anti-incumbency. In contrast, out of the three Hindi heartland states where the BJP lost the Assembly elections, two (Madhya Pradesh and Chattisgarh) had been under BJP rule for 15 years that undoubtedly would have been fertile ground for anti-incumbency.

The BJP should be more worried about farmers' woes, and the narrative on growing unemployment. Perception of a poor performance on these two factors can dent the party's claims of its ability to provide efficient governance. Now, given that job creation is more of a long-term process, there is little that the government can do on this front before the elections kick off.

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It is on farmers' woes where the government can opt to play the short-term game, say, via farm-loan waivers. This would be especially tempting in the backdrop of the Congress party's victory in Rajasthan, MP and Chattisgarh assembly elections recently where the party had made farm loan waivers an important poll issue. However, the government may conclude — rightly so — that farm loan waivers may not help much for the upcoming general elections, especially when the Congress party, too, is generously announcing such schemes. It may also be of some consequence that farm loan waivers are inequitable and highly inefficient, are unable to help the really distressed farmers, and are economically disastrous for the government's finances and for the banking system.

In this context, a universal, or partial, basic income can be a measure that could turn out to be economically and socially sound. A rough arithmetic would look as follows. Let us say the government decides to pay `150 per month per head (implying `750 per month for a family of five) to every Indian. Going by poverty line estimates as per the Rangarajan committee (at monthly income of `1,410 per head), this may imply a solid 11% boost to someone at the poverty line. About 30% of Indians who live below the thus-defined poverty line stand to gain meaningfully if such a scheme is rolled out. For another 20-25% of the population, too, this income may not be insignificant.

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At this level of income, this scheme will require Rs 2.4 lakh crore annually. If state governments are convinced to foot, say, 20% of the bill, and if the affluent (say, the 3 crore four-wheeler vehicle owning families) are excluded from the scheme, then the burden on the Union government works out to be `175,000 crore.

Funding can initially come from the curbing of some existing subsidies that are incorrectly targetted, suffer from extreme misallocation, and have relatively less political costs. If subsidies on fertilisers and petroleum products are withdrawn, then `100,000 crore can be freed up while cutting the MGNREGA budget by half would add another `25,000 crore to the kitty. The balance `50,000 crore can be raised via additional disvestment of government stake in PSUs. However, disinvestment can only be deployed as a temporary measure since selling capital assets to fund revenue expenditure may not be a sound step economically, though this is besides the point here. There can be other ways to fund this — with other sources of funds, or a slightly higher share of burden taken on by state governments, or a smaller scheme size, or some bump up in the fiscal deficit glide path which, again, will be bad economics.

The key point is that, given the relatively slow pace of poverty alleviation in the country since Independence, the most populous democracy in the world does have an obligation to strengthen social security for its poor and lower middle-class population. Second, as this scheme evolves, the government will feel pressurised to revamp the highly inefficient, piecemeal and disparate subsidy schemes (such as the food subsidy of `160,000 crore) that the country has had for so long, and reallocate funds towards the income support scheme. Similarly, there will be an increased urgency to expand the taxpayer base, and to make direct taxes more progressive in nature to raise additional funds.

A universal, or otherwise, income scheme can be amongst the most people-oriented and ambitious schemes that India has seen. It can be a big bang, long-term oriented scheme without causing much disruption. It'll certainly have a favourable election impact cutting across caste-based voter groups. The BJP's campaign managers may even take this as an effective tool to blunt the impact of the coming together of Samajwadi Party and Bahujan Samaj Party in Uttar Pradesh. Also, it may not be too difficult to implement logistically due to the deep inroads made in the last four years by the JAM trinity of Jan Dhan accounts, Aadhaar enrolments, and mobile penetration.

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