Universal Basic Income (UBI) – will it be a reality sooner than later!

by Sandeep Daga & Vivek Ganguly

Automation & AI are threatening jobs at all levels and we believe the only job not at threat is that of a God Man or a spiritual leader!

Jobs in diverse sectors like manufacturing (organized & unorganized), law, financial service, are all grappling with automation and AI and can well shrivel to a shadow of its current stature in the next 10 years timeframe. In such a situation, India's so called demographic dividend can turn into a demographic bomb!

While new jobs will be created in emerging trends such as renewable energy, old-age care, entertainment, etc. or for new skill set like AI, data analytics, cyber security, etc. what of people with traditional job skills? And specifically, relevant to the bottom of the pyramid population, is the aspect of livelihood preservation, particularly in India.

While long term solutions lies in education and re-skilling of the affected population, we do think the Government will have to create the framework for providing Universal Basic Income (UBI) as a strong interim measure till the really poor come up to a certain threshold of economic wellbeing.

Thus, UBI can be defined as economic support providing 'basic income security', instead of subsidy or job guarantee, till a household reaches certain economic status.

The UBI Math – Logically relevant

Subsidy (and other welfare schemes)

In India, government subsidy applicable to food, education, fuel or fertiliser gets triggered when a person decides to consume and pay for it. This implies that the person should have the capacity to pay for it ab initio! At the very bottom of the pyramid, the ability to pay now or even pay less is often non-existent.

A central subsidy at ~INR 2.5 lac crore has remained largely stable over the last 3 years. Additionally, INR 60,000 cr was spent on MNERGA (guaranteed employment) in FY17. For the uninitiated, this translates into ~USD 50 b of direct or indirect subsidy. Of which, fertiliser subsidy accounts for about INR 70,000 cr or ~USD 11 b. Thus, ex fertiliser subsidy is ~ INR 2.4 lac cr or ~USD 39 b)

Table I - Central Government Subsidy

Rs Cr FY15 FY16 FY17
Food (PDS) 1,15,000 1,24,000 1,34,834
Fuel 60,270 30,000 26,947
Fuel - LPG 22,000 19,802
Fuel - Kerosene (PDS) 8,000 7,144
Fertiliser 72,970 72,968 70,000
Interest Sub 8,312 14,903 15,523
Others 1,631 1,520 3,128
Total 2,58,184 2,43,392 2,50,432

Source: GoI website

It would not be out of place to assume that at least 20% of this spend gets misused or misdirected. This, if saved can translate into potential annual savings of ~INR 60,000 cr (USD 9 b), annually! Implementation of DBT has translated into savings of about INR 20,000 cr in FY17 and INR 57,000 cumulatively, since FY14! The larger impact of DBT would be to root out corruption and a systemic cleansing of the fabric of the country. This would mean effective dismantling of legacy & archaic systems such as PDS. Similarly, direct transfer of payment under MNERGA and other benefit schemes would eliminate intermediaries and commission agents who currently thrive as rent seekers by virtue of their power to stop, deny or delay the benefit to the beneficiary.

Given that a robust DBT (Direct Benefit Transfer) framework has been put in place for payments and benefit transfer, the same can well be used for any targeted benefit transfer, including UBI.

We believe sooner than later, in some form or shape, UBI will make its appearance in the Government's social welfare programs as a natural progression beyond subsidy & DBT. This will take place on account of the following factors:

It would not be out of place to assume that at least 20% of this spend gets misused or misdirected. This, if saved can translate into potential annual savings of ~INR 60,000 cr (USD 9 b), annually! Implementation of DBT has translated into savings of about INR 20,000 cr in FY17 and INR 57,000 cumulatively, since FY14! The larger impact of DBT would be to root out corruption and a systemic cleansing of the fabric of the country. This would mean effective dismantling of legacy & archaic systems such as PDS. Similarly, direct transfer of payment under MNERGA and other benefit schemes would eliminate intermediaries and commission agents who currently thrive as rent seekers by virtue of their power to stop, deny or delay the benefit to the beneficiary.

Given that a robust DBT (Direct Benefit Transfer) framework has been put in place for payments and benefit transfer, the same can well be used for any targeted benefit transfer, including UBI.

We believe sooner than later, in some form or shape, UBI will make its appearance in the Government's social welfare programs as a natural progression beyond subsidy & DBT. This will take place on account of the following factors:

Individual choice - While implementation of DBT has significant fiscal and institutional integrity benefits, it does not give the 'element of choice' to the beneficiary or gives 'limited choice', at best. The question to be asked at this point of time is, are we getting ahead of ourselves by discussing 'individual choice' when significant % of population is struggling at subsistence level? A short answer is, we should, because Choice is a natural progression of well-being and the paramount right of citizens. As society evolves economically, socio economic choice becomes paramount and decides the direction of the country.

Fiscally prudent - As per GoI figures, 20% of the population or 4.8 cr families are below poverty line. Assume, a family of 5 were to receive INR 4200 per month (~INR 50000* pa) as UBI, in lieu of aggregated benefits or subsidy. It would translate into a bill of ~INR 2.4 lac cr (~USD 37 b). This is more or less equal to current central subsidy and MNERGA bill, less fertiliser {2,50,000+58,000-70,000}). Thus, theoretically, UBI is a possibility without upsetting fiscal discipline. However, realistically speaking, we are some distance away from the same and implementation will require significant political will

Benefits of UBI

Income security – Consumption based subsidy assumes that the beneficiary has the ability to pay upfront and claim benefits either at the time of payment or later. This might not be the case for some segment of the population. On the other hand, UBI gives the beneficiary household room to 'breathe economically' and thus make prudent decisions over the mid to long term. This also enables nurturing of entrepreneurial instincts, beyond the immediate concern of day to day existence. UBI is thus also about mental & physical well being and support to stay above economic fragility.

More options, better life - When there is assured cash flow at specific intervals, the beneficiary will have economic comfort to be able to exercise choice regarding diet (more items like pulses, eggs, milk, etc), education (private or public school), health (public or private), investment (bank, insurance, house). A welcome scenario, wherein the passive recipients of government benefit emerge as active decision makers about their diet, education, health and other goods & services.

Empowerment of women - There is risk that some households will misuse this cash in social evils like alcohol, tobacco or gambling. For this government can make the eldest women in a household target beneficiary for UBI cash transfers. This step is likely to empower women.

Exit of government from legacy programs – The eventual winding up of such legacy programs like PDS, MNEGA, etc., would be most welcome.