UBI is actually Universally Botched by Indians (live Mint)

Mains Paper 5: Economy
Prelims level: UBI
Mains level: UBI problems and significance

Context

•  The idea of UBI has become fashionable recently in developed countries to alleviate stress caused by the unemployment resulting from automation and globalization.
•  In developing countries, it solves a different problem.
•  The leakages from targeted welfare transfers caused by low state capacity and corruption can be solved by replacing the flawed schemes with a single income transfer available to all.
•  UBI is being sold as the solution to all developmental and social problems, but it is far from perfect.
•  While there are many problems with UBI in its current form for India, the most important one is that it takes the pressure off politicians to undertake the structural reforms required to unshackle economic growth.

Scope of UBI

•  UBI seeks to eliminate all other welfare benefits and entitlements, which are prone to mis-targeting and leakage, and replace them with a single, clean direct cash transfer offered to everyone.
•  This has some clear benefits. Most importantly, there is no need to evaluate the eligibility criteria, and therefore, there is far lesser discretion in the hands of politicians and bureaucrats.
•  While other kinds of subsidies can create distortions in the market, UBI is a very clean welfare instrument.
•  But the success of UBI depends on actually eliminating all other schemes and using those resources towards the UBI.
•  Former chief economic adviser Arvind Subramanian has pointed out that there are 950 welfare schemes administered by the Union government and, many more, if one adds state government schemes.
•  These can potentially be scrapped and replaced by a single UBI.

Political dilemmas about UBI

•  The Indian politicians’ versions have obviously missed the most fundamental element of UBI and botched it conceptually.
•  Instead of replacing welfare schemes with UBI, they intend to add UBI, or in some cases a quasi-universal basic income (QUBI), to the existing schemes.
•  This is most clear in the case of the agrarian crisis, which is caused by the many regulations robbing farmers of their economic choices.
•  Scrapping these regulations would actually help farmers increase productivity, and even help them exit farming.
•  However, politicians have responded by upping subsidies, announcing loan waivers and now, adding QUBI to the mix.

Problems while implementing UBI

•  This brings up the other major problem with UBI the enormous fiscal burden on taxpayers.
•  UBI, as conceptualized in developed countries, provides a basic living income to all households, then the Indian state simply cannot afford it with its small tax base and young demographic.
•  Subramanian (along with economists Josh Felman, Boban Paul, M. R. Sharan), has instead suggested a more fiscally tenable QUBI to transfer ₹18,000 annually ( ₹1,500 per month) to eligible rural households.
•  Even this modest sum not paid universally, but to those who need it the most—is costly.
•  The estimated cost of this QUBI is 1.3% of the GDP, most of which would be financed by scrapping other farmer subsidies and rural welfare schemes.
•  They intend QUBI to supplement existing schemes without scrapping them, causing the fiscal burden to get out of hand.

Way forward

•  The biggest problem with the current focus on UBI in India is that it takes the pressure off the political class to genuinely support structural reforms.
•  After the 1990s, India’s reform agenda has all but ceased, and India is only witnessing a proliferation of regulations, subsidies and welfare schemes.
•  Every government announces new pet schemes, while changing the names of existing ones, and the Indian economy chugs along.
•  While post-liberalization India has lifted approximately 130 million out of poverty, it still has a long way to go.
•  Schemes, such as UBI, if implemented well, can relieve financial stress and vulnerability, but the real solution to poverty is sustained economic growth.
•  India knows from experience that structural reforms in agriculture, land, labour and capital are essential to unleashing the next bump in growth.
•  Focussing on double-digit growth through reforms would do far more for the poor than simply renaming schemes and adding new transfers.
•  Indians want opportunities and jobs, not transfers.
•  Politicians on the other hand, want voters to have dependence on welfare transfers such as UBI so as to garner votes. QUBI, and eventually UBI, may be here to stay just like every other scheme that preceded them.

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General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) Which among the following are accounted under the Current Account Transactions under Balance of the Payment?
1. Trade in Goods
2. Trade in Services
3. Remittances
4. Foreign Aid

Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 1, 2 and 3 only
(c) 1, 2 and 4 only
(d) 1, 2, 3 and 4

Answer: C

Mains Questions:
Q.1) The focus on UBI takes the pressure off the political class to support structural reforms. Critically analyse the statement.