If At All India Has To Introduce Basic Income, It Should Be Only For The Economically Vulnerable

If At All India Has To Introduce Basic Income, It Should Be Only For The Economically Vulnerable

by R R Prasad - Tuesday, January 29, 2019 02:07 PM IST
If At All India Has To Introduce Basic Income, It Should Be Only For The Economically Vulnerable Poor families living on the streets. (PRAKASH SINGH/AFP/GettyImages)
  • A targeted or non-universal programme aimed at assuring basic income to people of only the vulnerable sections, will suit Indian conditions.

    Greater transparency in drawing up lists of eligible beneficiaries is important for effective implementation of this project.

In the Indian social system, there are still huge sections of people who remain deprived of their basic human needs for a decent living. They are known by various labels such as destitute, marginalised and even vulnerable but the identifying character is their inability to maintain a basic minimum living standard.

India has a huge number of social protection schemes, including cash transfers but many of these schemes have not been very effective in making a difference in the lives of the hundreds of millions of people living in poverty and vulnerability across the country.

Therefore, the idea of providing some basic income as an attractive option for making the social protection system more effective is now one of the bigger debates in the country. Let us examine this debate more deeply. One of the primary arguments for basic income is not just to address poverty and improve lives through social inclusion, but also to allow people to overcome the stigma of welfare for recipients.

Basic income is an idea that has many names (including universal basic income, basic income guarantee, guaranteed annual income or guaranteed minimum income) and many definitions. Before the term ‘basic income’ came into vogue, policy wonks spoke generally about a ‘guaranteed annual income’, usually known by its acronym GAI.

Providing people with low incomes with more money – even relatively modest amounts – through simple cash transfers has been shown to have measurable improvements for people’s lives. A basic income can yield impressive results which include reducing extreme poverty and inequality, stimulating local economies, and freeing people from having to accept slave-like working conditions simply in order to stay alive.

In 1987, the Bruntland Report ‘Towards Sustainable Development’ argued that economic development is unsustainable if it increases vulnerability to crises. It added that the development path that combines growth with reduced vulnerability is more sustainable than one that does not.

This report, in fact, pleaded that economic and social development should be mutually reinforcing as economic development can accelerate social development by providing opportunities for underprivileged groups. In the words of Adam Smith, “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

Vulnerable groups are those groups whose resource endowment is inadequate to provide sufficient income from any available source. As per the World Bank, a vulnerable section in a population is one that has some specific characteristics that put them at higher risk of falling into the poverty trap than others, and as far as a vulnerable group in India is concerned it mainly covers the class of population deprived from adequate livelihood.

Inclusion of the most excluded and marginalised communities in the sustainable development goals: Agenda 2030 through the pledge of ‘Leave No One Behind’ is a key commitment that countries are looking into. Researchers at Brookings Institution say India had 73 million people living in extreme poverty in May 2018.

The National Sample Survey Organisation, which generates estimates of absolute poverty, has reported that there are 50 million Indians now living below the poverty line defined by the Suresh Tendulkar Committee. That is one in 25 people live below the poverty line. With this huge number of poor people living in India, how the country approaches social protection in the coming years will be very important for the global efforts to eliminate extreme poverty by 2030. It has to be ensured that no one is debarred from access to resources necessary for livelihood.

A universal basic income is usually conceived of as a fixed transfer given to everyone, regardless of income level. Such programmes are fairly rare in practice, with prominent examples coming from places with substantial natural resource revenues. Common arguments that are made for universal basic income programmes include their ease of implementation and low administrative costs, because the government does not have to verify income.

Another common argument is that such programmes do not distort labour supply, because the payments do not decline if you work more. Andy Stern, a senior fellow at Columbia University considers a Universal Basic Income, or UBI, the answer to rising inequality and the joblessness he sees coming from accelerating automation.

For most developing economies, a substantial universal basic income would need to be financed via domestic taxation. Given that a universal basic income would need to be financed through taxation, one can recast universal basic transfers as a particular feature of a tax schedule.

The trade-offs involved in adding a universal basic income to an income tax schedule, therefore, depend on how the rest of the income tax schedule is adjusted to satisfy the government budget constraint. This has to be seen both in terms of overall redistribution and how this affects potential distortionary effects from the increased marginal tax rates that introducing a universal basic income will necessitate.

Thus the universal basic income will function somewhat differently in a country with a large number of people outside the tax net. Philip Harvey, a professor of law at Rutgers is of the opinion that “unless you can argue that you are prepared to provide a UBI that is really adequate to eliminate poverty, you’ve no business advocating a programme that would leave people in poverty because it was inadequate.”

For India, we may perhaps introduce a targeted or non-universal programme for giving assured basic income to persons of only the vulnerable groups. Targeted schemes appear to deliver substantial improvements in welfare compared to universal programmes. Basic income can be introduced by degrees, and in conjunction with other needed policies. This would necessitate identifying the basis for giving assured basic income to the members of the vulnerable groups.

The success of basic income depends on how we frame it. Will it be cast as a form of charity by the rich? Or will it be cast as a right for all? Canadian politician Guy Caron calls basic income as a “top-up aimed at helping low-income Canadians to reach the ‘low-income cut-off.”

Thomas Paine was among the first to argue that a basic income should be introduced as a kind of compensation for dispossession. Hence, the meaning of ‘basic income’ should be construed as programmes in which payments are high enough to meet basic living expenses. Implementing this idea will require political will, but it is far from impossible. In fact, some research indicates that it might be politically easier to implement than other social policies.

Despite mixed empirical evidence at the macro level, most of the academic literature on redistribution builds on the Meltzer-Richard assumption that, in a democracy, voters who benefit or stand to benefit from redistribution will vote for candidates who promise or effectively carry out redistributive policies. There is a growing body of literature that shows that political identities are socially constructed.

Many countries have implemented cash transfer programmes that seek to target beneficiaries. Greater transparency of the lists of eligible beneficiaries will be important for effective implementation of a proxy-means test-based scheme of giving assured basic income.

The author is a Retired Professor from National Institute of Rural Development and Panchayati Raj, Hyderabad. 

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