Explained: What is the origin of idea of Universal Basic Income in India?

The northeastern state of Sikkim could become the first Indian state to implement a Universal Basic Income (UBI) scheme to cover all its residents. State Chief Minister Pawan Kumar Chamling, who is seeking re-election in the coming Assembly polls, has proposed a UBI for all its residents by 2022 if voted back to power. Ishan Bakshi and Archis Mohan explain the genesis of the idea and whether the Sikkim plan can be implemented nation-wide.

What is the origin of the idea of UBI in India?

One of the earliest proponents of shifting to a UBI architecture in India was economist Pranab Bardhan. In an article in the Economic and Political Weekly in 2011, Bardhan made a case for UBI which could be funded by doing away with subsidies. 

In 2016, Bardhan made a strong case for a UBI of Rs 10,000 (at 2014-15 prices) that would roughly cover three quarters of the population below the poverty line for that year. Extending this to the entire population would entail a cost of around 10 per cent of GDP. This cost, Bardhan argued, could be met by doing away with “regressive subsidies” (these account for 9 per cent of GDP) and clawing back part of the revenue forgone by the Centre (this amounts to 6 per cent of GDP). 

Economist Vijay Joshi, made a similar proposal in his book India’s Long Road: The Search for Prosperity. Joshi proposed a cash transfer of Rs 3,500 per person or Rs 17,500 per household (at 2014-15 prices). Extending this to the entire population would cost the exchequer roughly 3.5 per cent of GDP, he estimated. 

Another proposal was put forth by former chief economic advisor, Arvind Subramanian. In the Economic Survey 2016-17, Subramanian proposed a transfer of Rs 7,620 in 2016-17 — the amount needed to lift the poor above the Tendulkar Committee poverty line. Extending this to three-fourths of the population would cost the exchequer roughly 4.9 per cent of GDP, he estimated. 

Is the idea fiscally feasible in a country like India?

Some economists consider the UBI to be a better alternative given the well-known problems of inclusion and exclusion that plague the current welfare system in India. Shifting to a UBI-type welfare architecture means doing away with certain existing subsidies in order to create the necessary fiscal space. 

The government subsidies can be divided into merit and non-merit subsidies. Merit subsidies include subsidies on account of food, education, health etc, while non-merit subsidies include those such as fertiliser, power etc. 

A study by economists at the National Institute of Public Finance and Policy shows that while merit subsidies have risen over the past few decades, non-merit subsidies have fallen. Despite the decline, non-merit subsidies account for roughly 5 per cent of GDP — in line with the fiscal space needed to provide a UBI as was proposed by Subramanian. 

Is there a global model India can take cues from?

A few years ago, Finland made headlines when it announced its intention to launch a basic income scheme, Europe’s first national government-backed experiment of the kind. The project involved giving 2,000 unemployed Finns 560 euros per month starting January 2017. It was hoped that over time this project could be extended as it would be less costly compared to the social welfare architecture that the country was running. However, in early 2018, it was decided that the project would not be continued in its current form 2019 onwards. 

What are the basic tenets of the UBI model proposed by Sikkim?

According to Sikkim Lok Sabha member Prem Das Rai, the proposed UBI in the state would cover each of its seven-lakh subjects. The ruling Sikkim Democratic Front (SDF) is in the process of working out the modalities of the scheme, including the monthly amount its next government would deposit in the bank account of each beneficiary. Rai, the MP from the lone Lok Sabha seat of Sikkim, said the primary objective is to “future proof” the youth of the state. 

The UBI would subsume all current social welfare schemes, those provided by the state government as well as the Centre, including old age pensions. The SDF hopes it would be able to raise sufficient revenue from tourism and export of hydropower to support UBI. It is mulling a small tourism cess to raise more resources, if needed. Pawan Kumar Chamling-led SDF has ruled Sikkim since 1994. It is confident of returning to power in the Assembly polls, scheduled simultaneously with the 2019 Lok Sabha elections.

Can this model be used as a template for a national UBI plan?

Currently, state governments and the Centre run several schemes aimed at helping people with financial assistance. These include old age pensions, cash assistance to farmers and for the education of the girl child, maternity benefits and others. A UBI would entail subsuming these and extending these to not just specific demographic groups, but to all.