Moneycontrol
Oct 12, 2017 12:39 PM IST | Source: Moneycontrol.com

IMF bats for Universal Basic Income in India, eliminating food and fuel subsidies

The IMF, in its Fiscal Monitor report published on Wednesday, pitched for the role UBI as supplanting the existing system of state subsidies, which they characterise as inefficient in terms of cost, administration, and implementation.

The International Monetary Fund (IMF) has pushed for introducing unconditional Universal Basic Income to Indian citizens by eliminating both food and fuel subsidies.

Under Universal Basic Income, every citizen of a country receives a basic amount of money as minimum guaranteed income regardless of their economic status. It is a kind of social security for citizens and the money is transferred directly to their bank accounts.

The uniform UBI for every person is calculated for 2011-12 at Rs 2,600 annually, which is equivalent to about 20 percent of median per capita consumption in that year. IMF reached the estimation by combining the cost of Public Distribution System (that focuses on rationing food and kerosene) and energy subsidies.

Even though it is deemed to be a modest amount (less than Rs 100 per day) and would need to adjusted to inflation for present year, it would still incur a fiscal cost of about 3 percent of GDP for 2011-12.

The IMF, in its Fiscal Monitor report published on Wednesday, pitched for the role UBI as supplanting the existing system of state subsidies, which they characterise as inefficient in terms of cost, administration, and implementation.

Though the aim of UBI is said to alleviate poverty and social exclusion and reduce economic inequality, it is argued that the policy would give unnecessary benefit to higher-income groups who may not need that money.

In its Selected Issues paper published in February this year, IMF has discussed India’s case with regard to UBI. As arguments for having UBI, the paper suggests that the policy can “potentially boost consumption and growth”. Among the arguments against is “Non-negligible disincentive to work.”

UBI was recommended in India by Chief Economic Adviser Arvind Subramaniam in the Economic Survey 2016-17. Finance minister Arun Jaitley, though supportive of the cause, claimed it was likely to be politically unfeasible, according to a report in The Mint.

IMF also argues that UBI will have a better population coverage than PDS and bring into fold the significantly ignored 20 percent of lower-income groups.

As per the report, IMF said that eliminating tax subsidies on energy would give way to significant rise in fuel taxes and retail prices of fuel such as petrol (67 percent), diesel (69 percent), LPG (94 percent), and coal (455 percent), etc.

However, IMF has made estimations and analysis based on public distribution system (PDS) and tax subsidies on energy in 2011-12, thus, excluding the recent fuel price reforms.

They mention that the reforms would mean fuel prices being linked to import parity prices. The report says, “Gasoline prices were liberalized in 2010, diesel and natural gas prices in 2014, and kerosene and LPG prices in 2016. Fuel excise duties have been raised, the prices of kerosene and LPG are being gradually increased, and a tax of Rs 400 per ton has been imposed on coal consumption.”

Energy tax subsidies have been reduced to 0.2 percent of the GDP in l 2016-17. Consequently, better targeting of food subsidies has reduced the expenditure to about 1.5 percent of the GDP.

An earlier paper by IMF had stated that, “While UBI may help overcome some failures of the current system, concerns on fiscal affordability and political feasibility weigh heavily on policy discussions.”
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