India Debates Adoption of a Universal Basic Income, Better Than Subsidies?

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Source: Jeff Yoders/MetalMier

I am not sure this would go down well in the U.S., but take the most populous country in the world, with an estimated population of 1.3 billion of whom 22% are judged to be living in poverty and give them a state-provided universal basic income (UBI) payable to every single person. Sound like madness? Sound like a recipe for financial disaster? Sound like a socialist pipe dream? Maybe, but the idea is being actively debated in India according to the Economist.

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Although the pre-annual budget economic survey, published on January 31, did not make any promises, it did outline an idea to pay every citizen 7,620 rupees ($113) a year. Far from a king’s ransom — it is equivalent to less than a month’s pay at the minimum wage in a city, but it would cut absolute poverty from 22% of the population to less than 0.5%. The money would largely come from recycling funds from around 950 existing welfare schemes, including those that offer subsidized food, water, fertilizer and much else besides. Altogether, these add up to roughly the 5% of GDP that the UBI would cost, the government’s chief economic adviser, Arvind Subramanian estimates.

You can understand the likely enthusiasm of the liberal left. Existing subsidies and support for the poor are often poorly targeted, ripe for various forms of corruption and complex to administer. But the idea has sparked support from the right among those who see it as an opportunity to remove dozens of wasteful subsidy programs and will, therefore, not only reduce what is seen as a massive waste of public funds but also a huge administrative burden from the public purse.

At least in one respect India has advantages over other countries in terms of disbursement or getting the money to recipients. Well over 1 billion Indians now have biometric identification cards, known as Aadhaar, the Economist says. The system can handle money, usually by diverting incoming payments to a bank account linked to an Aadhar number.

By definition, a UBI means the money is paid to everyone but Subramanian’s sums suggest he is budgeting on only about 75% of the recipients taking payments. Although if the idea is the middle classes and wealthy would voluntarily forgo receipt of their money, that’s probably a pipe dream. Few but the very rich are likely to decline a free lunch.

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Still, it is an interesting idea and has merit if for no other reason than by removing subsidies on fuel, water and so on. It would remove market distorting incentives that have no place in a modern economy and create not just wasteful allocation of precious state funds, but wasteful use of the resource being subsidized.

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