The way forward for India: Targeted Basic Income

With over 430 schemes under the DBT framework, we are already half-way there, so it is about time that the government makes the switch towards such a transfer program.

There has been a lot of talk regarding India’s agricultural sector. A major focus has been on the intent of the government to double the income of the farmers in a time-bound manner. The government recently decided to increase the MSP and implement the Swaminathan Committee’s recommendation as a step towards the objective of doubling the farmers’ income by 2022.

An analysis by Dr. Surjit Bhalla and me in a paper revealed that the growth rate of prices, after the implementation of the high MSPs is 11 per cent as against 12 per cent in the preceding year. This shows that somehow MSP is not the best policy tool at providing income support. Our paper discusses at length the problems of the price policy thus, clearly, we need a new policy instrument to provide our farmers’ income support.

The choice of this new policy instrument is very clear, it should come under the Direct Benefit Transfer framework in the form of a Targeted Basic Income. Dr Bhalla presented the possibility of such a transfer in 2000 while former Chief Economic Advisor, Dr Arvind Subramanian had advocated for cash transfers in 2008 and for a Universal Basic Income in the Economic Survey of 2016-17. While a Universal Basic Income may not be possible, however, the idea did initiate a much-needed policy discussion on the possibility of such a scheme.

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The recent paper by Dr Bhalla and me revealed that there are multiple propositions for such a basic income and the first step towards implementation of such a scheme would be to identify who would be the beneficiaries of such a scheme. There has been a recent discussion for a monthly income scheme for all farmers that is linked to the size of the farms- this would be an extension of the Rythu Bandhu scheme. This scheme would cover all farmers and cost approximately 2.8 lakh Crores to the Indian Government or 2.1 percentage of the GDP. The problem with such a scheme is that since it’s linked to the farm holding size, the larger the farm size, the higher the transfer of income thus, such a scheme can sharpen the rural inequality.

Further, another important question is should income support only be provided to the farmers and not the poor. The problem with a unilateral transfer to all farmers means that even rich farmers tend to get benefit from such a scheme while it would come at the cost of the urban poor. It is not ethically correct to ignore the poor while we direct the resources towards the “rich” or above poverty line farmers.

Thus, if a targeted basic income scheme is designed, it should cover the poor and not just rural but also the urban poor. The next question was what the transfer amount should be. To ensure that the real value of transfer remains the same, the urban monthly transfer comes to be Rs. 620 per month while rural monthly transfer comes to be Rs. 530. This is because the cost of living in urban areas is higher than in rural areas.

Based on the World Bank’s criteria for moderate poverty line, India has 33 per cent of its people below the poverty line. Thus, the transfer scheme should be designed to target these individuals on a monthly basis. The cost of such a transfer program also comes to Rs. 2.8 lakh Crores which is exactly the cost of implementation of a nation-wide extension of the Rythu Bandhu like scheme. Thus, by incurring the same amount of money, the government can target all the poor in India rather than target all the farmers.

As is the case, the expense of government on fuel and fertilizer subsidies along with the employment generation programs such as MNREGA comes to be 2 per cent of the GDP and the cost to uplift a person from poverty under such programs is extremely higher than the proposed targeted basic income program. The Targeted Basic Income would ensure that it removes all leakages from schemes such as PDS (PDS has up to 70 per cent of leakages) and it ensures that resources are better targeted to the poor in India.

With over 430 schemes under the DBT framework, we are already half-way there, so it is about time that the government makes the switch towards such a transfer program.

(This article is based upon the paper “Towards a Targeted Basic Income Policy for India” by Dr Surjit S. Bhalla and Karan Bhasin. The entire paper can be accessed by clicking here)

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