Time has come to discuss Universal Basic Income, says Economic Survey

Growth to be 6.75-7.5% in FY18 and 6.5-6.75 in FY17; remonetisation to be complete by April

Idea of Universal Basic Income has come, at least for discussion, says Economic Survey for 2016-17, a pre-budget document even as it asserted that remonetisation would be complete by March-end. From April onwards the "transitional pains" caused by demonetisation would start coming to an end and the economy would be on track of normal growth, pegged at 6.75-7.5% for 2017-18, it claimed. 

The range of growth given is so large that means that the economy could grow lower than 7.1% calculated by advance estimates for the current financial year, but it could expand substantially higher than that. However, the Survey, presented by finance minister Arun Jaitley in Parliament on Tuesday, pegged economic growth even in the current financial year at 6.5-6.75%. 

It said recorded GDP will understate impact on informal sector. For instance, informal manufacturing is estimated using formal sector indicators (Index of Industrial Production). These contractionary effects will dissipate by year-end when currency in circulation will once again be in line with estimated demand, which would also allow growth to converge to a trend by FY18.

The survey, authored by chief economic adviser Arvind Subramanian and his team, toyed with the idea of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty.

"The Survey concludes that the UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion," it said.

To give it sanctity, the survey put it in the context of the philosophy of Mahatma Gandhi. It said Mahatma, as an astute political observer, would have anxieties about UBI as being just another add-on Government programme, but on balance, he may have given the go-ahead to the UBI.

Based on a survey on misallocation of resources for the six largest Central Sector and Centrally Sponsored Sub-Schemes (except PDS and fertiliser subsidy) across districts, the Survey pointed out that the districts where the needs are greatest are precisely the ones where state capacity is the weakest. This suggests that a more efficient way to help the poor would be to provide them resources directly, through a UBI.

Exploring the principles and prerequisites for successful implementation of UBI, the Survey pointed out that the two prerequisites for a successful UBI are: (a) functional JAM (Jan Dhan, Aadhar and Mobile) system as it ensures that the cash transfer goes directly into the account of a beneficiary and (b) Centre-State negotiations on cost sharing for the programme.

The Survey calculated that a UBI that reduces poverty to 0.5 percent would cost between 4-5 percent of GDP, assuming that those in the top 25 percent income bracket do not participate. 

On the other hand, the existing middle-class subsidies and food, petroleum and fertiliser subsidies cost about 3 percent of GDP.

The Survey says even as the basic tenets of the Responsibility and Budget Management Act (FRBM) remain valid, the operational framework designed in 2003 will need to be modified for the fiscal policy direction of India of today, and even more importantly the India of tomorrow. 

This setting out a new vision through an FRBM for the 21st century will be the task of the FRBM Review Committee. The committee has already submitted its report, but it was not made public. 

The country's experience shows that the fiscal activism embraced by advanced economies- giving a greater role to counter-cyclical policies and attaching less weight to curbing debt- is not relevant for India.