Rahul Gandhi's minimum income guarantee scheme conveys UBI issues again

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Representational Image
Representational Image

New Delhi : With Election approaching, leading political parties are putting in best possible efforts to make healthy impression before the masses. For now, Congress is announcing to introduce a minimum income guarantee scheme in 2019, if comes to power. The message, once again, has brought forward Universal Basic Income. The available rural problems along with disappointment over jobs seem to be the reason which instigated the Congress to come up with such income scheme.

Earlier, the Congress party had performed an employment guarantee scheme in the form of MNREGA which has so far given way to positive results. Conversely, it is often argued that the implementation of the minimum income guarantee scheme would require not only rolling back of various subsidies but a major reduction in government spending. In this background, a careful analysis of the UBI scheme becomes crucial.

The idea was first argued by the Economic Survey of 2016-2017. “A Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis. It is not an entitlement but a right by virtue of being a citizen of a country. UBI is a step towards a more equal society as it would promote Social equity, reduce poverty directly, and reduce risks related to unemployment, health etc. by providing a safety net. But, In India’s context, the most important benefit would be in terms of addressing misallocation, exclusion and leakages which grapples plethora of schemes run by the government to root out poverty and inequality”, the survey stated

Many countries like Norway and Finland practice ‘Universal Basic Income’, whereas others like Germany, Switzerland and France are experimenting with it.

On the other hand, in a developing country like India, the idea comes with challenges. Based on 2011-12 poverty distribution and their consumption expenditure if a target poverty level of 0.45% is chosen, with UBI of INR 7620 per year and 75% coverage the financial cost of UBI will be 4.9% of GDP, said the economic survey 2016-17.

IMF had also proposed transferring Rs2,600 in 2011-12 prices to every individual in India after eliminating the food and fuel fundings. “Although such a transfer is more modest than that often discussed in public debate, it would still incur a fiscal cost of approximately 3% of GDP,” the IMF said.

From the above estimation, it can be expected that the step would require a significant reduction in government spending if it wants to attach to the fiscal consolidation path. But, if eliminating subsidies merely to implement a minimum guaranteed income would be wise, is a relevant question to ask.