By Parush Arora
Other than demonetization reliefs, final touches to GST and strengthening of present policies, the economic survey 2016-17 advocated the implementation of Universal Basic Income (UBI) in the ensuing years. The scheme talks about a minimum subsistence level to everyone below poverty line through providing a fixed amount of free cash, no strings attached. Arvind Subramanian, Chief Economic Advisor backed the idea while presenting the economic survey and said that government is in deep discussion regarding its arrangements and its implementation might take some time.
Is it feasible?
One of the key hindrances is the feasibility of UBI. The government is thinking of swapping the existing welfare programs, which largely takes the form of subsidies, by a constant stipend. The fiscal cost estimated in the enactment comprises approximately 4.9% if 75% of the population is included under the scheme and an amount of Rs 893 is given to each individual i.e. Rs 7620 per annum.
The government is seriously considering the implementation of the universal basic income policy. | Source: The HinduThe government has to chip in more if it uses up all the funds for all the welfare programs currently active in the country. Removing the major subsidies for the downtrodden would save 2.07% of GDP. Abolishing additional subsidies that accrue to the middle class, on things like electricity, train, and air travel, cooking gas, gasoline and loans, would deliver a supplementary 1.05% of GDP which may not be enough to cover the actual expenses.
Even after the introduction of Jan Dhan Yojna and opening up of bank accounts, a huge amount of the population is still not part of the financial system which poses a serious challenge to the delivery of the scheme.
With surging oil prices, the fiscal deficit is expected to escalate, as predicted by the economic survey, posing another threat to the initiation of this policy.
How will it work? Switzerlands and Brazils experiments
Switzerland rejected the referendum last year featuring the introduction of UBI. 77% of the population stood against the policy and argued that creating a gap between work done and income earned is not a good idea.
[su_pullquote align=”right”]The survey conducted by the world bank, however, gave a totally different result, stating that the program does not promote lackadaisicalness or spending on unnecessary items.[/su_pullquote]
Brazil in 2001 came up with a law which entitled a fixed income to all families bearing children. The critics feared that the program will encourage torpidity in the working class and might direct the spending towards alcohol. The survey conducted by the world bank, however, gave a totally different result, stating that the program does not promote lackadaisicalness or spending on unnecessary items. They observed that 87% of the stipend was spent on food items in rural areas. A review of 165 studies over 30 countries found that schemes like this encourage school attendance, enhance savings, reduce child labour, benefits women decision making etc.
Conclusion
The BJP government are in serious talks regarding the policy formulation of UBI. It looks like an attractive poverty alleviation program to many but is it the right time?