India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

Universal Basic Income For all

, January 29, 2019, 0 Comments

universal-basic-incomeCongress President, Shri Rahul Gandhi has promised that his party will implement the scheme of Universal Basic Income for all if the party comes to power after the next general elections. There are skeptics who believe that it is not possible to implement such a scheme in a poor country like India. Even some leaders of the Congress Party have started coming out with their own versions of the scheme which are so far removed from reality that it will give the party a bad name. Here in this article we argue that it is feasible to introduce this scheme on a universal basis. We outline here a scheme which is modest in scope but pragmatic and universal in coverage.

A system of taxation that has been almost universally accepted today in different countries of the world is the progressive income tax. When we say progressive it implies that the rate of taxation is higher for the rich and lower for the poor.

A concept of income tax which has been widely discussed in text books but seldom introduced in actual practice is that of a negative income tax. This implies that citizens who earn a very low level of income are actually paid a compensation or negative income tax instead of being made to pay tax. The Economic Survey has discussed this concept of a negative income tax but choose to call it Universal Basic Income (UBI).

The Economic Survey has estimated that under UBI the coverage will be 75 per cent of the total population of the country. 25 per cent of the highest income earners will fall outside the purview of the UBI. As a rough estimate it has been calculated that about 5 per cent of the country’s GDP will be the cost of implementing UBI. It is the understanding that when UBI is implemented a large number of welfare schemes of the government will be done away with and this is how the resources to implement the UBI will be garnered. The Economic Survey identifies that there are about 950 large and small central and centrally sponsored schemes being implemented which could become targets for elimination when UBI is introduced.

The critics of UBI are of the view that at India’s stage of development time it is not ripe to introduce the UBI. The size of population living below the poverty line in India is so large that it is estimated that the cost of implementing UBI will become prohibitive and our country cannot possibly afford it. Identifying the beneficiaries under the scheme will be another major hurdle. The poor in India, employed primarily in the informal sector maintain no record of their income and expenditure and there cannot be any fool proof method of identifying those who will qualify for UBI.

One of the benefits of UBI is that transfer payments under this scheme can be made directly into the bank accounts of the citizens and there will be very little scope for leakage and corruption. As against this most of the welfare schemes being implemented by the government are prone to leakages and mired under various types of malpractices. There is no guarantee today that the benefits from these schemes are actually reaching the intended beneficiaries. As against this benefits from UBI will be both direct and transparent.

Let us now see how a negative income tax can be actually implemented in India. First of all we should identify a large number of welfare schemes being implemented by the central and state governments which will become possible candidates for abolition. The total resources that can be garnered by abolishing these schemes should be worked out. Schemes such as Grameen Sadak Yojana and Mid Day Meals Scheme should not be chosen for abolition. This is because these schemes are meeting a particular need of society which will not be fulfilled by providing doles. Possible schemes for abolition would the ones like PDS, MNREGA, schemes providing subsidy, a large number of tiny schemes and so on.

Once we determine the amount of resources that will be gained by abolishing a large number of schemes we decide how these schemes will be replaced by income transfer to the people at large through a negative income tax. Let us assume that the resources garnered amounts to 6 per cent of the country’s GDP of about Rs 130 lakh crores or Rs 7.8 lakh crores. If distributed equally among the population of 130 crore in the country, each person will receive an income of Rs 6000 per annum or Rs 500 per month. It would be prudent to be modest and not over ambitious and a negative income tax of Rs 6000 per annum would be appropriate for the country to start with.
Let us now come to the problem of identifying beneficiaries.

If debated this would become a sort of insurmountable problem leading to no consensus. Let us forget all problems of identifying beneficiaries and make the scheme universal. This means that even Tata and Birla and Ambani will get a negative income tax of Rs 6000 per annum. How do we justify the transfer of resources to the rich. The answer is that the rich citizens of the country are income tax payers and ultimately they will be paying much more than the partly Rs 6000 they receive, as income tax per year.

How do we take care of the population who doesn’t have bank accounts. The coverage of citizens with bank accounts has increased tremendously during the last 15 years or so. If it is announced that government is going to transfer Rs 6000 to bank accounts of all citizens some more people will open bank accounts. All difficulties in opening bank accounts should be removed such as stumbling blocks in the form of stringent KYC requirements and so on. Ultimately if there is still someone who is without a bank account it should be announced that such a person will not be covered by the scheme.

The coverage of the scheme will have to be universal. This would include rich and poor and also the young and old. Infants and minors can get entitlement through the bank account of their parents. Adults could also be permitted to gain benefits through bank account of their registered spouses. Old and infirm and disabled or insane if they are incapable of operating bank accounts should receive negative income tax through bank account of their close relative who has been identified. In this way the negative income tax or UBI can become a reality.

In essence the scheme implies that all citizens of India will become entitled to a universal basic income which will be credited to their bank accounts every month. The scheme will be universal and cover all citizens, including the old, sick and handicapped. To start with the universal basic income could be Rs 500 per month or Rs 6000 per year. The resources for implementing the scheme will be generated by abolishing a very large number of welfare schemes including the PDS and the MNREGA.

The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.