UBI an alternative to subsidies for poverty alleviation, a powerful idea whose time has come: Economic Survey

The Economic Survey has proposed a Universal Basic Income ( UBI) that ensures every citizen has a right to a minimum income to cover their basic needs as a long-term solution to reduce poverty in the country.

“The UBI must be embraced in a deliberate, phased manner as it allows reform to occur incrementally — weighing the costs and benefits at every step,” said the Economic Survey 2016-17 tabled by finance minister Arun Jaitley in Parliament on Tuesday.

UBI can replace several subsidy-based social welfare schemes, the survey said.

A universal basic income, like constitutional rights, would be unconditional and universal. Hence, it would be difficult to target the actual poor, and it would take a toll on the exchequer. “The concept looks good, but identification of the real beneficiary is a major challenge,” said DK Pant, chief economist at Delhi-based ratings agency India Ratings. “While Aadhaar establishes the identity of every individual it does not classify people. Hence, UBI is doable if beneficiaries are better targeted,” he said.



Based on the 2011-12 level of distribution and consumption, the survey has estimated that the income or UBI needed to take one person out of poverty is Rs 7,620 per year.

The Survey said a UBI that reduces poverty to 0.5% of the population would cost 4-5% of GDP, assuming that those in the top 25% income bracket do not participate in the programme. It pointed out that the existing middle class subsidies and food, petroleum and fertiliser subsidies cost about 3% of GDP.

DK Joshi, principle economist at ratings firm Crisil, said the country cannot financially afford a full-fledged UBI in this year’s budget. “There can be rationalisation of subsidies to begin with, followed by a pilot, and later may be some subsidy related schemes can be withdrawn and given under UBI,” he said.

There are about 950 central sector and centrally sponsored schemes in India, accounting for about 5% of the GDP budget allocation. A large majority of these are small in terms of allocation with top 11 schemes accounting for about 50% of total budgetary allocation.

Considering this, the Survey has proposed offering UBI as a choice to beneficiaries of existing programmes. “Designed in this way, UBI could consequently not only improve living standards; it could also improve administrative (and cut the leakage costs) of existing programmes,” it said. To choose beneficiaries, the Survey suggested an approach of excluding the non-deserving ones.

“Define the non-deserving based on ownership of key assets such as automobiles, air conditioners or bank balances exceeding certain size, adopt a ‘give-up’ scheme, publicly display the list of UBI beneficiaries to name and shame the rich who chose to avail themselves of a UBI, and lastly self-targeting,” it has proposed.

The Survey admitted that financial inclusion and a well-functioning financial system are crucial to implement a universal basic income. It said the fiscal space to start a de facto UBI already exists in the country, but added that political and administrative considerations make it difficult to do this.