While much of public discourse in India has tended to focus on expanding the current subsidy regime to help the poor, Vijay Joshi, economist at Oxford University, advocates shifting to a universal basic income, replacing all government subsidies with a single cash transfer to all citizens, providing them with a basic income guarantee.
At the launch of his book, India's Long Road: The Search for Prosperity, Joshi said income distribution was largely done through price subsidies. This policy involves providing products and services such as electricity and fertilisers at below-market prices. But this system, as economists have also pointed out, is a rather inefficient way of helping the poor as much of the benefits end up in the hands of the undeserving. The problems are further compounded by high levels of leakages from the system.
Joshi said that getting rid of these subsidies would lead to immense fiscal savings. Add to that the revenue from privatisation, and the fiscal gains for the government could well be 10 per cent of gross domestic product (GDP). This fiscal space could not only be used for greater public investment, but could also be used to provide a cash transfer to every individual which would help eliminate absolute poverty. Joshi estimated that such a scheme would cost around 3.5 per cent of the GDP. At the launch of the book in New Delhi, chief economic advisor Arvind Subramanian said some variant of the basic income guarantee was possible in India.
Acknowledging the debate between targeting and adopting a universal approach, Subramanian offered an alternative approach — targeting geographically, especially the poorer regions of the country, but adopting a universal approach within these areas. Such a strategy would be less costly.
But shifting to this architecture was not that simple, said Jaimini Bhagwati, a panelist at the event. Altering the subsidy architecture was difficult as it would undoubtedly lead to the well-known problems of the political economy, he added.
