Janjivan Bureau
NEW DELHI: Handing cash to Indians rather than providing the poor with cheap food or guaranteed jobs would nearly eradicate poverty but at a cost of 4 to 5 percent of gross domestic product, a government report said on Tuesday.
Universal basic income (UBI), a radical idea that is gaining attention in countries such as Finland and France, proposes giving every citizen an income to cover their basic needs.
Several economists advocate cash transfers in Asia’s third-largest economy, where despite rapid economic growth one in three of the world’s extreme poor reside. An emergency medical payment or bad harvest risks a return to poverty for millions more.
The annual Economic Survey, which forms the basis of the annual Indian budget Finance Minister Arun Jaitley will present on Wednesday, said UBI was a persuasive alternative for replacing existing welfare programs. Yet it warned about implementation risks and the potential cost to government.
“The key merit of it is that it has the potential to improve the weak targeting of current schemes,” Arvind Subramanian, the ministry’s chief economic adviser, told a news briefing.
Under the survey’s calculation, a UBI that cuts the poverty rate to 0.5 percent of the population would cost 4 to 5 percent of GDP. The calculation presumes that the richest quarter of Indians do not get the income, because it says any program cannot in practice strive for strict universality.
At 2011/12 prices, the basic income would amount to 5,400 rupees ($79.59) per person per year. Some economists have questioned whether payments of that size could eliminate poverty.
Tackling entrenched poverty has preoccupied policymakers since India ended colonial rule in 1947, and in the survey Subramanian said he drew on the wisdom of independence hero Mahatma Gandhi in weighing the social justice of a basic income.
HEAVY SUBSIDIES
India currently spends 3 percent of GDP on subsidies, much of them for the middle class. It pays billions of dollars for some of the world’s largest welfare schemes, including cheap food for more than 800 million people and jobs for 50 million households.
“Our main fear is that Universal Basic Income is just being used to replace existing social schemes,” said Reetika Khera, an economist at the Indian Institute of Technology in Delhi. “This is a system that is tried and tested and showing signs of improvement.”
The survey cautioned that it was not yet advocating introduction of UBI.
A basic income risked becoming too costly, and India would need to improve identification schemes to ensure transfers reached beneficiaries, it said.
Critics of India’s existing programs say they are undermined by corruption and leakages.
Subramanian cited research showing schemes reached more people in the areas where they were least needed, because of the weak capacity of the state in less developed ones.
“The advantage of UBI is that we can get around this,” he said.
Many economists expect Prime Minister Narendra Modi and his Bharatiya Janata Party to cut back on populist welfare schemes expanded under his predecessor. So far he has shown little willingness to embrace bolder structural reforms.
The Economic Survey 2016-17 presented in Parliament today states that against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments-the passage of the Constitutional Amendment, paving the way for implementing the transformational Goods and Services Tax (GST), and the action to demonetize the two highest denomination notes. The GST will create a common Indian market, improve tax compliance and governance, and boost investment and growth; it is also a bold new experiment in the governance of India’s cooperative federalism.
The Survey Report says that demonetisation has had short-term costs but holds the potential for long-term benefits. Follow-up actions to minimize the costs and maximize the benefits include: fast, demand-driven, remonetisation; further tax reforms, including bringing land and real estate into the GST, reducing tax rates and stamp duties; and acting to allay anxieties about over-zealous tax administration. These actions would allow growth to return to trend in 2017-18, possibly making it the fastest-growing major economy in the world, following a temporary dip in 2016-17.
The Economic Survey 2016-17 states that the year was also marked by some tumultuous external developments. In the short-run, world GDP growth is expected to increase because of a fiscal stimulus in the United States but there are considerable risks. These include higher oil prices, and eruption of trade tensions from sharp currency movements, especially involving the Chinese yuan, and from geo-political factors. Another serious medium-term risk is an upsurge in protectionism that could affect India’s exports.
The Survey states that the year also saw a number of legislative accomplishments in the country. In addition to the GST, the Government:
· Overhauled the bankruptcy laws so that the “exit” problem that pervades the Indian economy–with deleterious consequences highlighted in last year’s Survey–can be addressed effectively and expeditiously;
· Codified the institutional arrangements on monetary policy with the Reserve Bank of India (RBI), to consolidate the gains from macroeconomic stability by ensuring that inflation control will be less susceptible to the whims of individuals and the caprice of governments; and
· Solidified the legal basis for Aadhaar, to realise the long-term gains from the JAM trifecta (Jan Dhan-Aadhaar-Mobile).
Beyond these headline reforms were other less-heralded but nonetheless important actions. The Government enacted a package of measures to assist the clothing sector that by virtue of being export-oriented, labour-intensive could provide a boost to employment, especially female employment. The National Payments Corporation of India (NPCI) successfully finalized the Unified Payments Interface (UPI) platform. By facilitating inter-operability, UPI has the potential to unleash the power of mobile phones in achieving digitalization of payments and financial inclusion, and making the “M” an integral part of “JAM.” Further FDI reform measures were implemented, allowing India to become one of the world’s largest recipients of foreign direct investment. The government has also adhered to a steady and consistent path of fiscal consolidation.
The major short term macro-economic challenge is to re-establish private investment and exports as the major drivers of growth and reduce reliance on Government and private consumption. Addressing the Twin Balance Sheet problem—over-indebted corporates and bad-loan-encumbered public sector banks—a legacy of the years surrounding the Global Financial Crisis will be vital.
Looking further ahead, societal shifts at the level of ideas and narratives will be needed to overcome three long-standing meta-challenges: inefficient redistribution, ambivalence about the private sector and property rights, and improving but still-challenged state capacity. Doing so would lift an economy that is oozing with potential. In the aftermath of demonetisation, and at a time of gathering gloom about globalization, articulating and embracing those ideational shifts will be critical to ensuring that India’s sweet spot is enduring not evanescent.
The report says that India seems to be a demographic sweet spot with its working age population projected to grow by a third over the next three decades providing it a potential the growth boost from the demographic divided which is likely to peak within next five years.
The Survey report also states that the Swachh Bharat which has the objective of ensuring safe and adequate sanitation, water security and hygiene has been a part of serious policy issue which would promote a broader fundamental right to privacy for women in the country.
