UBI can work only if welfare schemes are phased out: CEA

19 Apr 2017

The radical idea of giving free money under a universal basic income plan to reduce poverty can work in India only if the plethora of welfare schemes are phased out, Chief Economic Adviser Arvind Subramanian has said.
Subramanian -- who had mooted the idea of universal basic income or a uniform stipend paid to every adult and child, poor or rich, in the annual survey of the economy this year -- said such a move will have to be completely financed from within and implemented at a mass scale.
Universal basic income (UBI) will guarantee all citizens enough income to cover their basic needs and would be easier to administer than the current anti-poverty schemes, which are plagued by waste, corruption and abuse.
According to The Economist, India's proposal to give every citizen a cash transfer using the digital platform Aadhaar could reduce absolute poverty from 22 per cent to 0.5 per cent.
"The Indian setting is completely different in two three different ways. One is that this is not going to be donor financed at all (like in some African countries). It is going to be completely financed (from) within," Subramanian said in his appearance at the Center for Global Development, a top American think-tank.
"So the issues that come up, relate to is do we have the fiscal space to do? Secondly, if it happened this is going to be kind of a scaled-up version. It's not going to be 80 villages, what is the impact and then we think about scaling up. It will be a scaled-up kind of a thing," he said, observing that this was something that does not necessarily need to be implemented by the centre like one scheme.
States can start on their own, noted Subramanian, who is currently in the US to attend the annual Spring meetings of the International Monetary Fund and the World Bank.
Observing that providing UBI would amount to between four and five per cent of GDP, he said the Indian government cannot afford that.
"So the only way it can work is to potentially we can phase down some of the existing programmes, otherwise it does not work," he said.
"Then you get into the political economy of questions like can you phase down other subsidies...the fertilizer subsidy, the employment guarantee scheme. Can you phase those programmes politically or now? When you can't phase it down an extra four-five per cent of GDP is not very meaningful," he said. (PTI)