In the Economic Survey of 2016-17 the concept of Universal Basic Income (UBI) was discussed as a potential solution to reducing poverty and income inequality. It was put forth as a radical idea whose time had come. The Survey report estimated that the cost of a direct cash transfer to every Indian of Rs 7260, equal to the then poverty line number would entail an annual cost of 4.9 percent of GDP.
This was unthinkable and daunting given the fiscal resources available to the government. So UBI was a distant and elusive goal. However, the concept of direct cash transfers has gained immense popularity. The Direct Benefit Transfer (DBT) was rolled out in January 2013 because it eliminates leakage, is timely, is transparent and helps financial inclusion.
The no frills Jan Dhan bank accounts, Aadhaar number identification and mobile are the JAM enablers of DBT. All three have become ubiquitous making it easier for the spread of DBT which can be in the form of cash or in kind. As per the DBT website there are 315 schemes across 53 ministries being implemented by the Central government alone, which cumulatively have disbursed 38 trillion rupees so far, of which 3 trillion was just in the last fiscal year.
The total number of unique beneficiaries who receive cash was about 700 million in 2023-24. The concept of DBT is not confined to cash alone, since the free distribution of food grain of five kilo per person per family per month is also considered an in-kind DBT. The number of beneficiaries for such in-kind DBTs was more than 1 billion in 2023-24. The distribution of in-kind benefits such as free food grain or a cooking gas cylinder also entails the cost of delivery. But DBT of cash is directly into the bank account already created by JDY.
Hence the cost of transfer is minimal. Which is why cash DBT has caught on in popularity, and many States are also using it. If you include the variants of DBT implemented by various States, the total number of schemes could surpass 450.
The latest example of a cash DBT is Maharashtra’s Ladki Bahin Scheme (LBS). This gives 1500 rupees to every woman between the age of 21 and 65 who is domiciled in the State, not a government employee or taxpayer and whose family income is less than 2.5 lakhs per annum. Since it puts conditions for eligibility it cannot be called universal. But more than 2 crore applications have been received already. The Chief Minister has promised to double the benefit if re-elected. The estimated cost to the State’s exchequer is 46,000 crore per year. The objective of this cash transfer scheme is to empower women and help them come out of poverty. So, it is not unlike the objective of UBI.
It was inspired by the Ladli Behena Scheme (LBS) launched in neighbouring Madhya Pradesh in January 2023, which received an enthusiastic response. That too was aimed at providing financial assistance to women, to empower, and to have resources for skill development and training. Interestingly it was pitched only to married (or divorced or widowed) women. Madhya Pradesh had launched the Ladli Lakshmi scheme in 2007 which was emulated by six other States. Unlike LBS which is for financial empowerment, the Lakshmi scheme was aimed at the girl child and to reduce the skew in the sex ratio. The total benefit to the girl given as deferred payment on reaching the age of 21 was more than rupees 1 lakh.
If you count the various cash transfer schemes for girls and women across different States of India, it adds up to a significant amount. To that you can add in-kind benefits like free tuition, free bicycles, or free bus tickets and so on, which are being implemented in a few States. This does begin to get closer to universal income focused on the female gender. We need to then go back to the UBI debate and examine its viability in the present context, after eight years of being introduced in the Economic Survey.
For UBI to be fiscally viable, many existing schemes have to be cut down or replaced. For instance, the cash transfer to farmer households (PM Kisaan) will be subsumed in UBI. The less the conditionality attached, the lesser the cost and better the chances of it being effective. The approach should be opt-out rather than opt-in.
So richer folk who prefer to remain out of UBI have to voluntarily opt-out, otherwise by default everyone is in. Universal coverage simplifies administration and reduces exclusion errors. Of course, the benefit ends up also going to individuals who do not need such assistance, as they may be quite well off. Of course, as the Economic Survey too pointed out, the cash based UBI can be potentially inflationary. And in any case UBI may need to be enhanced every year due to inflation indexation. This aspect makes the UBI less attractive, because if the inflation burden rises faster than the growth of taxes, then at some point it becomes unsustainable.
One practical approach is to roll out UBI like a targeted public distribution system (TPDS), which only focuses on backward areas and districts. A pilot UBI can be rolled out that targets only the most vulnerable groups, such as the elderly, poor women (like in LBS of Maharashtra or Madhya Pradesh), or indigent and the disabled. It could be tried out in different States. The learning from such a pilot can be used to better design a UBI which is affordable and effective.
There remains the philosophical issue whether basic income is a right. Since we have enacted rights or have given de facto entitlement to food, education, rural employment, this idea of basic income, especially to the most vulnerable, is but a natural extension. Given the proliferation across different States of various cash transfer and other free in-kind benefits schemes for girls and women, we are already marching toward a modified form of UBI.
(Dr. Ajit Ranade is a noted Pune-based economist) (Syndicate: The Billion Press)
