Case for UBI should be delinked from pandemic response: Somanathan

Rajan said that any further spending support should be more on relief than a classical Keynesian stimulus.
The case for a Universal Basic Income in India should stand and fall on its own merit, and not as a response to a crisis like the Covid-19 pandemic, Expenditure Secretary TV Somanathan said on Wednesday.

Somanathan was speaking at a virtual session of the National Council of Applied Economic Research’s India Policy Forum. Others who spoke at the same session included Nobel Laureate Abhijit Banerjee, former Reserve Bank of India Governor Raghuram Rajan, and member ofthe 15th Finance Commission Ashok Lahiri.

“A case for Universal Basic Income should stand and fall on its own. One needs to delink the case for a UBI with that for a response to a pandemic or any other crisis. Even if we had an UBI, the experience of countries with a better social security net shows that we still would have had to do more. And that would have further reduced fiscal space for the government,” Somanathan said.

Rajan, meanwhile, said that the central and state governments will have to maintain increased spending, whatever the deficit figures may be, and there may be a need for substantial stimulus going forward. When asked by other panelists on the need for the RBI to directly monetise the Centre’s fiscal deficit, Rajan said that the amount parked in reverse repo could be considered as the extent of government funding by the central bank.

Rajan also said that there were three distinct issues which were being confused with each other as a response to the pandemic. Namely relief, repair and stimulus. “You cannot see relief and repair as part of a stimulus, and this time repair is the most important,” Rajan said.

Rajan said that any further spending support should be more on relief than a classical Keynesian stimulus. “There has been lots of destruction. Firms which otherwise contribute to India’s GDP have not been able to function for the past three months. That is where you need to target any further intervention,” he said.

Banerjee, meanwhile lauded the government’s efforts to ramp up cash transfers to targeted beneficiaries during the Covid-19 pandemic, but said that the amounts should have been bigger. Banerjee pointed out that not having an empirical or policy base for understanding internal migration had really hurt India, as evidenced in the migrant crisis. This was compounded by the fact that there was also a lack of a cohesive housing plan for migrants across the country.

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