Provide Universal Basic Income

Finance Minister has said that “the debate over the political cost of economic reforms has dissipated with the benefits reaching the deprived sections of society… the outcome of demonetisation has proved critics wrong as neither the GDP nor agricultural output suffered.” Such a fortuitous outcome of the reforms is indeed possible.

The present NDA Government has set new high standards of probity. Major improvements in defence, highways and railways are being undertaken. The services sector is growing rapidly and creating jobs in new areas like repair of mobile phones. There is an excitement among the people of the country rich and poor alike.

Other forces unleashed by the same reforms are, however, working in the opposite direction. One sari shopkeeper of Varanasi said that business of the artisans had collapsed after demonetisation. Previously, the artisans used to supply the saris to the shopkeepers against post-dated cheque.

The artisans would get the cheque discounted by brokers. The broker would draw cash from the bank on the due date mentioned on the cheque. This cycle has been badly disrupted by the push to digital economy. The brokers are not accepting post-dated cheques because they are not able to draw cash from the banks against these instruments.

As a result the artisans are not getting money from the shopkeepers and their business has come to a standstill. The slag has been picked up by textile mills of Surat. The end result of demonetisation in this case has been loss of income of the artisans and gain of income by textile mills of Surat. Similar anecdotal evidence is available from many sectors that were dominated by unorganised businesses.

Two opposite tendencies are at work at present. The better governance provided by the NDA Government and the consequent better utilisation of funds is pushing up the economic growth generally. At the same time certain labour intensive sectors are negatively impacted. The final result of these two opposite tendencies is not known at present.

The Finance Minister should prepare to face a situation that negative impacts of digital economy on the common man turns out to be severe. One way of dealing proactively with this situation is to implement the Universal Basic Income scheme.

Every household in the country can be provided a small amount of money every month. The household can meet his basic requirements of food and clothing with this money. This will not entail any additional financial burden on the Government if all the existing social welfare programmes are subsumed under the scheme.

According to the Indian Public Finance Statistics published by the Ministry of Finance the Union Government made following expenditures on social welfare schemes in 2014-15, all figures in thousand crore rupees per year: Education 81, health 24, family welfare 13, housing 23, urban development 14, rural development 119, fertiliser subsidy 73, food subsidy through Food Corporation of India 115 thousand crore rupees.

The total of these schemes was 462 thousand crore rupees in 2014-15. The amount would be around 530 thousand crore rupees in 2016-17 considering inflation during the period. This amount can be made available for the Universal Basic Income scheme if all these welfare programmes are disbanded. Let us not forget that most of these monies are being used to pay salaries to the government servants manning these schemes.

Only a fraction of the amount spent reaches the beneficiary as Rajiv Gandhi once famously said that only 15 paise of the one rupee sent from Delhi reached the beneficiary. More money can be raised by imposing a hefty tax on petroleum. We consume about 21 thousand crore litres of petroleum products every year. The Finance Minister can impose, say, a Universal Basic Income Tax of Rs 25 per litre on all petroleum products.

The Government can raise an additional Rs 525 thousand crore of money every year from this. The total amount available would be Rs 1055 thousand crore per year. Rs 960 thousand crore of this money can be used to pay Rs 48,000 per year or Rs 4,000 per month to all the households in the country.

The grand benefit will be that the beneficiary households will not have to waste their day undertaking fake works under MNREGA, standing in queues at the fair price shop, or running around the village pradhan so that his name could be included in the list of beneficiary of a programme like the Indira Awas Yojana. People of the country would be able to use their energies for undertaking productive works while also being assured of a basic income that is sufficient to keep their body and soul together.

There is a great dissonance in the society today in the classification of Below Poverty Line or BPL, and Above Poverty Line or APL households. Large numbers of people want to be classified as BPL so that they can avail of schemes such as subsidized food grains and housing subsidies.

The payment of the Universal Basic Income to all the households will remove this classification from the landscape of the country. The tax on petroleum will devolve directly on those who buy petrol and diesel for their scooters and cars. The BPL households have few of these. Thus the APL households will pay most of this money.

The tax on petroleum will devolve indirectly on those who buy more quantities of goods such as electricity and aluminum, in the production of which petroleum is used. The APL households consume most such goods. Thus the Rs 525 thousand crores of tax collected from the taxes on petroleum will mainly be paid by the APL households. Let us consider one half of the households as APL.

These 10 crore APL households will get Rs 48 thousand per year under the Universal Basic Income scheme and they will pay approximately the same amount by way of the additional tax imposed on petroleum products. In the end, the APL households will remain unaffected while the BPL households will get a respectable Universal Basic Income that will be sufficient to meet their basic needs.

The Finance Minister should think of implementing this scheme so that the NDA II Government does not meet the fate of the NDA I Government in case the benefits of the economic reforms do not devolve to the weaker sections. (Author was formerly Professor of Economics at IIM, Bengaluru)

By Dr Bharat Jhunjhunwala