THE GIST of Editorial for UPSC Exams : 28 December 2018 (The safety net of the future)

The safety net of the future

Mains Paper 2: Governance
Prelims level: Universal Basic Income Supplement
Mains level: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Context

•  The social inequality is the most acutely felt social problem in India, insecurity, more than poverty, is the most acutely felt economic problem.
•  While most measures suggest that only one-fifth of the population today is under the official poverty line, large sections of those even much above that line are subject to brutal economic insecurities of various kinds (due to weather or health risks, market fluctuations, job losses).

Background of the loan waivers

•  Wild schemes of bank loan waivers.
•  A bad idea plays havoc with the banking culture (just as that of loan waivers for corporate defaulters does), but most of it goes to help the middle and large farmers (more than two-thirds of our farmers are marginal farmers with less than 1 hectare of land, who take only 20 per cent of institutional loans, and owe the rest to private lenders, which the waiver programme will not touch).
•  So some politicians are now paying attention to the politically successful Rythu Bandhu example of income support to Telangana farmers (at about Rs 10,000 per hectare).
•  All this distress arises directly or indirectly from India’s singular failure in creating enough secure jobs.
•  The farm distress is ultimately because of low productivity (due to lack of enough irrigation, cold storage and extension services, apart from the effects of climate change), and the low-earning farmers themselves want to move to non-farm jobs.
•  This has been a failure of all political parties over many decades.
•  The absence of secure jobs is also behind agitations on job reservations even by dominant castes (Marathas, Patidars, Jats, Kapus) and various incidents of hateful violence and minority lynchings.
•  Task of creating a sufficient number of secure jobs a long-term project.
•  One idea is that of a Universal Basic Income Supplement (UBIS), which avoids some of the problems for loan waivers and farm income support per hectare, and also some of the administrative and perverse incentive problems of most insurance schemes.
• What about the fiscal cost of the UBIS?
•  We know that the highly defective loan waiver programme, if applied to all states in India, will easily cost more than Rs 4 trillion.
•  The feasibility of UBIS, depends on political will to increase the tax-GDP ratio, and (assuming that none of the existing major anti-poverty programmes will be significantly scaled down) to cut down on various subsidies largely enjoyed by the better-off sections of the population.

Way forward

•  It has been estimated that the latter subsidies (for the central and state governments together) currently come to about 6 per cent of GDP; another 6 per cent of GDP is in the form of “revenues foregone” in the central budget.
•  All this adds to about 10 per cent of GDP.
•  But at least a quarter of these resources can pay for a decent UBIS for everybody to start with, give it only to women, which will halve the cost.
•  The potential is there to tax (and reduce the subsidies for) the better-off and address India’s staggering problem of economic insecurity.

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Prelims Questions:

Q.1) Which among the following best describes Negative Income Tax?
(a) Income subsidies provided to persons or families whose income falls below a certain level.
(b) Penalty imposed on people not filing their income tax returns.
(c) Tax deducted at source by the payer of income.
(d) Effective rate of all subsidies provided by government.

Answer: A

Mains Questions:
Q.1)What is a Universal Basic Income? Do you think India should adopt a Universal Basic income? What are the challenges India would face to adopt a Universal Basic Income?