Govt can balance subsidies and still implement Universal Basic Income scheme: Study

There has been much debate on the idea of a Universal Basic Income (UBI) – a concept put forth by the Economic Survey, 2016-2017. The idea of UBI is that everybody would be entitled to a basic minimum income under the scheme, which won’t be considered compensation for work.

A lot of economists have argued that India’s economy is not ready to take the burden of a UBI. That the country does not have enough fiscal space to accommodate basic scheme alongwith its existing subsidies.

According to the Economic Survey, UBI of Rs 7,620 per person will be needed.

However, a recent report by economists Sudipto Mundle and Satadru Sikdar at the National Institute of Public Finance and Policy suggests that the government can balance its subsidies and still implement UBI. The study says that this can be done if the government removes its non-subsidy elements.

The study defines merit subsidies as those for food, education, health, sanitation and water supply. On the other hand, other subsides like petrol and fertilisers fall under the non-merit category.

The combined subsidies of — centre and state governments — have gone down by 10.6 percent of the gross domestic product on 2011-12. There also has been an increase in share of merit subsidies to 5.6 percent in 2011-12 from 3.8 percent in 1987-88.

During the same period, non-merit subsidies declined to 5 percent of GDP from 9.2 percent. According to the economists, share of demerit subsidies is likely to have fallen further since 2012 on back of falling petroleum subsidy.

Considering the earlier UBI of Rs 7,620, it will amount to 4.9 percent of the GDP – a number close to what it is been spent on the non-merit subsidies.

However, since the bulk of non-merit subsidies are spent by the states, they will have to take the cut equally. Some sharing agreement between the states and Centre will be needed to shift to the UBI system while removing the non-merit subsidies, which will be a tough task for the government.

According to the economic survey, UBI will not only promote social justice, nit also empower the poor of the country and give them a chance to make their own economic decisions. While the survey has tried to explain how India can adapt to UBI, the path for it looks difficult.