#BQDebates: Top Development Economists Against Guaranteed Income
Congress President Rahul Gandhi and Chhattisgarh Chief Minister Bhupesh Baghel in Naya Raipur, on Jan. 28, 2019. (Photograph: PTI)

#BQDebates: Top Development Economists Against Guaranteed Income


Congress President Rahul Gandhi promised a minimum income guarantee scheme for the poor if voted to power in the next general election. Congress leaders said a certain income level would be identified, and a family falling short of that level would be compensated the difference. They have not yet defined what the threshold will be.

BloombergQuint spoke to three leading development economists, who voiced not only skepticism, but apprehension about such moves by any government.

Price, Income, Debt Support Are All Unsustainable And Lazy Fixes

- Mihir Shah, Former Member of the Planning Commission (2009-2014) and the National Advisory Council (2012-2014)

This rush towards quick fixes like cash transfers, farm loan waivers and raising minimum support prices of rice and wheat are lazy short-cuts and not a solution to India’s very serious farm crisis.

Giving farmers more money to continue to grow the same crops in the same way, which brought them to this crisis point in the first place, is a potential disaster for them, apart from being fiscally unsustainable as well.
Mihir Shah, Distinguished Visiting Professor, Shiv Nadar University

We urgently need more resources to fix our public healthcare and education systems. Where will that money come from if we squander it in this way?

Address Production Costs

Without fundamentally altering the paradigm of agriculture and water in India, which means providing procurement support to less water intensive, less risky and less costly crops, such as millets and pulses, and also going beyond the green revolution paradigm of chemical agriculture, we cannot ensure stable and sustainable incomes for our farmers.

The reason why farmers are in distress is that the cost of cultivation has shot through the roof. Increasingly higher applications of chemical fertiliser and pesiticides are required to get the same level of output.

The cost of cultivation keeps increasing and farmer net incomes are today in the negative.

Incentivise Millets And Pulses

For the last 40 years the only crops we have procured are wheat and rice. We need to expand procurement operations for millets and pulses which are also nutritionally the much better option.

Introduce millets and pulse preparations in the mid-day meals, and the aanganwadi programmes, as also the public distribution system. If you do this, farmers have an incentive to grow these crops. Farmers respond to market signals, and we need to change the structure of incentives.

If this is done, we don’t need farm loan waivers and cash transfers, which are fiscally unsustainable and will further compromise the integrity of our already fragile banking system.

It’s very dangerous, what’s happening right now.

A simple way of working around this problem would be to subsidise organic fertilisers. Over dependence on the chemcial fertilisers helps only the companies, not the farmers.

The new paradigm for agriculture, where farmers are incentivised to grow nutritionally rich whole foods, in a sustainable manner, can create multiple win-wins: water security, better water quality, ecological balance, lower costs of cultivation, higher farmer incomes and better consumer health.

Against Any Variant Of A UBI

C Rammanohar Reddy, Economist and Former Editor, EPW

The idea of a universal basic income or a quasi-universal basic income has become a fashion among international economists and has been brought to India as well. I am not in favour of it.

It could work when the citizens already enjoy a basic level of services and a certain cash transfer is made to top-up income. Here, what is being thought of is to replace all or most welfare services with a variant of the UBI.

Welfare Services Must Stay

We must remember that welfare services play a certain role – in nutrition, health and education. You can quarrel about delivery but you can’t quarrel about the need.

With a UBI, the government, if it replaces one by another, is just abdicating its responsibility by handing citizens a certain amount of cash.

The long-term solution for the government would be to improve the quality of welfare services and simultaneously create conditions for economic growth which delivers decent jobs for its citizens.

I am against any variant of a UBI – quasi, minimum income guarantee or a Rythu Bandhu scheme as in Telangana (which incidentally is highly regressive because the more land you own, the more you get).

You shouldn’t be looking for electoral gimmicks like offering UBI/QUBI/minimum income guarantees to win your way to office but by evading your responsibility.

Congress Plan A Serious Tradeoff

Debraj Ray, Professor of Economics, New York University

First, I should say that as far as I can see, Congress’ proposal is not a universal basic income, but a minimum income support to the poor.

That requires an income or wealth check, and there is always a good reason to be prima facie suspicious of situations in which a check is involved.

On the other hand, the UBI is potentially far more expensive. It’s a tradeoff, a serious one. But either of these proposals are quite different from what I had proposed.

Commit To A GDP Share, Not Amount

I want us to commit to a transfer program—whether UBI or a minimum guarantee—that is stated as some given percentage of India’s gross domestic product. The commitment is the percentage and not the amount.

Without this sort of percentage commitment, a transfer program will have to be revised periodically for inflation or for real GDP growth, and each such revision is an enormous step, replete with politics and lobbies.
Debraj Ray, Professor of Economics, NYU

That is why I have always asked for a commitment to a share. A share indexes automatically and is responsive to the overall wealth of the nation. A commitment to a share means that we start small, but overall, we grow as we can afford it. Rome wasn’t built in a day.

The problem with making a rupee-based, and not shared, commitment is that the amounts will either be too small to be much more than a very token gesture, or too large so as to be unsustainable.

We then have to have the political will to remove other subsidies. Not all of them, and certainly not infrastructural programs, for which no amount of private transfer can compensate. Among the exceptions that need a lot of thought is MGNREGA, which is an employment scheme and not a subsidy, and the public distribution scheme.

There is room for PDS and UBI to be integrated in the long run, but the specifics of such a scheme are complex and need more thought than can be provided here.

The question again consists of insulating against changes in the cost of living for the poor, for which commitments denominated in kind are useful.

I understand that at this stage we lack specifications about the scheme but it would be interesting to know how a concept like UBI would work in India. It will work if:

  • we commit to a share of our GDP being transferred as UBI,
  • we remove other wasteful and regressive subsidies that we are all aware of, and
  • we are willing to think of intelligent ways of integrating commitments in cash (UBI, minimum guarantee, etc.) and kind (PDS).

Offer A UBI That’s Tedious For The Well-Off

Abhijit Banerjee, Professor of Economics, Massachusetts Institute of Technology

A universal basic income is meant to avoid all the issues that have to do with targeting the subsidy to those who are poor. Two of those are:

1. Incentive Effects

Suppose I could avoid being poor by doing MGNREGA work but I’d rather get the money for free since the work is tedious. Would I still do the MGNREGA work? Or would I make myself poor to get this other government subsidy. In other words, we have potentially strong incentives to stay under the poverty line. I don’t think people will quit a decent job to be poor—which some people might suggest—but not doing NREGA work?

2. Targeting

Who decides who is under [say] Rs 1 lakh? Based on what data? This is often a reason why the poor get left out, because they don’t know how to lobby the right people, to be included.

A UBI means everybody is entitled. No one needs to quit their job to get it, or lobby to be a beneficiary.

A possible mix of the two is to make everyone but the very rich eligible. Say, everyone who has not filed income tax with a family income of more than Rs 10 lakh per year. Make each weekly payment only available to those who sign in using their Aadhaar and their biometrics on an ATM. Make that process somewhat tedious. You have to wait in line in a crowded place. They don’t have to take out the money but, they have to show up and signal that they are still alive. This will cut out the comfortably off.

In terms of budget, we will need to make the fiscal space of 2-3 percent of GDP, which is currently not there.

An Incredibly Complicated Idea

- Jayati Ghosh, Professor of Economics, Centre for Economic Studies and Planning, JNU

If this is a move to preempt such announcements by Narendra Modi, that’s smart. But otherwise, it’s incredibly complicated to work out and implement, and should not come at the cost of providing necessary public services.

Why not universal pensions as we have been demanding for ages? Makes more sense, and is easier to implement.
Jayati Ghosh, Economics Professor, JNU
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