UBI can work only if welfare schemes are phased out: CEA

Washington: The radical idea of giving free money under a universal basic income plan to reduce poverty can work in India only if the plethora of welfare schemes are phased out, Chief Economic Adviser Arvind Subramanian has said.

Subramanian -- who had mooted the idea of universal basic income or a uniform stipend paid to every adult and child, poor or rich, in the annual survey of the economy this year -- said such a move will have to be completely financed from within and implemented at a mass scale.

Universal basic income (UBI) will guarantee all citizens enough income to cover their basic needs and would be easier to administer than the current anti-poverty schemes, which are plagued by waste, corruption and abuse.

According to The Economist, India's proposal to give every citizen a cash transfer using the digital platform Aadhaar could reduce absolute poverty from 22 per cent to 0.5 per cent.

"The Indian setting is completely different in two three different ways. One is that this is not going to be donor financed at all (like in some African countries). It is going to be completely financed (from) within," Subramanian said in his appearance at the Center for Global Development, a top American think-tank.

"So the issues that come up, relate to is do we have the fiscal space to do? Secondly, if it happened this is going to be kind of a scaled-up version. It's not going to be 80 villages, what is the impact and then we think about scaling up. It will be a scaled-up kind of a thing," he said, observing that this was something that does not necessarily need to be implemented by the centre like one scheme.

States can start on their own, noted Subramanian, who is currently in the US to attend the annual Spring meetings of the International Monetary Fund and the World Bank.

Observing that providing UBI would amount to between four and five per cent of GDP, he said the Indian government cannot afford that.

"So the only way it can work is to potentially we can phase down some of the existing programmes, otherwise it does not work," he said.

"Then you get into the political economy of questions like can you phase down other subsidies...the fertilizer subsidy, the employment guarantee scheme. Can you phase those programmes politically or now? When you can't phase it down an extra four-five per cent of GDP is not very meaningful," he said.

Subramanian also noted that some people think that India has built in a reasonably well social welfare programme in terms of giving away subsidised food.

"Would this undermine that? And the third big question is, is the infrastructure to implement this...the whole biometrics, financial inclusion and mobile," he said in response to a question.

"India currently has 1.1 billion people covered under biometrics. At the same time 250 million have banking financial accounts and about 60 per cent of those are linked to the AADHAAR numbers," Subramanian said.

In terms of mobiles, 250 million people have smart phones, 300 million people have regular phones and 350 million people have no phones, he noted. Ideally one would like to have the biometric number, bank account and mobile phone linked with each other, he said.

"That is the kind of dream, we call it the JAM (Jan Dhan-Aadhaar-Mobile) infrastructure. At the moment, it is very patch in the way it is developed," he said.

Noting that in principle nothing prevents a state government from going on its own, Subramanian said, what some of the states, which are thinking about it seriously, do want is federal money for this. The states might ask for untied money from the Centre, he said.

"That is the kind of conversation that is beginning to happen, because that would make it easier for the state governments to finance this," Subramanian said.

One of the starting points for this in India is the various social welfare schemes, like the employment guarantee scheme, the food or kerosene subsidy are very leaky and they do not do a very great job in reaching the poor, he said.

UBI can easily be an improvement on that, the chief economic adviser said. Responding to a question, Subramanian said that it would be very difficult to phase out the existing subsidy programmes, because of the potential political opposition to it.

"That's true across the world, very difficult to withdraw entitlements," he said. "So unless you phase down existing programmes...you can't really (implement UBI)...because the magnitude is so big," he said.