Minimum economic security is not unaffordable

I shall now present, as an example, some rough estimates that I myself have made over the years for a low middle-income country, India. I first look at the mobilisable fiscal resources in India, and then discuss how much of these can go toward funding a UBI supplement.

 

For many decades both central and state governments in India have been providing substantial subsidies to different sections of the population. Some of these subsidies like those for food, education, health, water supply, sanitation, housing and urban development serve essential needs, often (though not always) for the common people, and so are deemed as "merit subsidies". But a majority of the subsidies happen to be for other purposes, primarily going to the better-off sections of the population, and have been called ‘non-merit subsidies’. It has been estimated that the total "non-merit" subsidies (both explicit and implicit) of the central and state governments together came to about 5.7 per cent of GDP in 2015-16.

 

On top of this in the central budget alone what are called Revenues Foregone (tax exemptions and concessions mainly to business) come to about 5 per cent of GDP. Some of these concessions may be indispensable (for example, in the case of customs duty exemptions for re-exports), some others may be less so (for example, tax exemptions for encouraging investment in Special Economic Zones are on the sometimes dubious presumption that without these exemptions this investment would not have taken place elsewhere anyway). It is probably not too unreasonable to take one-half of this total (that is, 2.5 per cent of GDP) as potentially available for more worthwhile purposes. Also, this does not count the Revenues Foregone in state government budgets, for which we do not have good estimates.

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There is also considerable scope for fresh taxes. The tax-GDP ratio in India is substantially lower than in China, Brazil and some other developing countries. India’s real estate and property tax assessments are absurdly low compared to their market value. India has also zero taxation of wealth and inheritance, and of agricultural income. This is at a time when household survey data (which usually underestimate inequality) suggest that India’s wealth inequality is mounting, and now in the Latin American range. We are roughly estimating 1.8 per cent of GDP in the form of additional taxation.

 

All combined, there is thus a potential for mobilising about 10 per cent of GDP. Of course there are several important claims on any extra resources mobilised. In particular, the needs for additional spending on health, education, and infrastructure are urgent. (Even with the most generous basic income supplement, people will not by themselves spend enough on their health and education needs, and there are public welfare reasons why the state needs to invest in all these three items.)  Even keeping this in mind and allowing for an equal division of the extra 10 per cent of GDP thus mobilised on these three items plus UBI, it is possible to get resources for UBI to about 2.5 per cent of GDP.

 

This very roughly implies a UBI of about Rs. 20,000 per family (or Rs. 4,000 per individual), which is a decent UBI supplement in the Indian context—it comes to about 15 per cent of the average consumer expenditure in the household. (One could add to the mobilisable potential if in the post-pandemic context it is possible to raise a ‘corona levy’ that may go toward an overhaul of the public health system which has been found to be seriously deficient in the crisis).

 

3. and 4. The above fiscal scheme keeps untouched the existing welfare programmes. (Some of these programmes may be wasteful, and if they are pruned or replaced, the resource potential can even exceed 10 per cent of GDP). So the opposition (3) then becomes largely irrelevant. Similarly, in the above scheme, the total 10 per cent of GDP gets equally allocated among health, education, infrastructure and UBI, so that should go some way in meeting opposition (4). If the social consensus is in favor of spending somewhat more in effective investment for health, education or infrastructure, and somewhat less for UBI, I’ll not seriously object.

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Some implementation issues

 

Politically savvy people will immediately point out that elimination of long-standing subsidies and imposition of new taxes will meet a lot of resistance from many quarters, and will be politically difficult to carry out. While that is true, a crisis situation sometimes may soften up the resistance somewhat, and may thus be an opportune time to try big changes. If for some time the whole of the 10 per cent of GDP is difficult to mobilise, even with half the amount one can start a UBI supplement only for the women.

 

There are, of course, many other objections raised to the UBI proposal—about the level of UBI supplement (too low for some, too high for others), if it should be indexed to the cost of living so that it does not get eroded as prices rise, that many people do not have ready access to a bank account where the UBI supplement can be easily deposited, etc. These are mostly problems at the implementation stage; once the idea of UBI is accepted at the conceptual and at the broad policy direction level, there can be pragmatic and flexible ways of handling the implementation problems. For example, some have suggested that the UBI should be a share of the GDP, rather than an absolute amount. Then even starting with a low absolute amount, with sufficient GDP growth one can soon reach a decent amount of UBI. This also gets around the indexation issue, as the absolute amount of UBI will rise with price rises raising the nominal GDP. One practical problem is that it becomes a bit murky at the political level: most common people will not have a clear idea of what the GDP is and will not know what to expect as UBI, and even economists will dispute particular measures of GDP (as they have done with the official GDP measures in India in recent years). People not having bank accounts is a serious problem in many countries. The general estimate is that two-thirds of people in low-income countries, and 42 per cent in lower middle-income countries, do not have access to a bank account. One has to make do with other alternative ways of cash payments in unbanked and remote-access areas—roving banking agents or mobile phone banking have been used in some countries. Many people in some countries (for example, in Nigeria more than 70 per cent of people) do not have any government-registered identification card (this is much less of a problem in Indonesia or India). So clearly at the implementation level different developing countries will be at different stages of preparation for the implementation of an UBI.

 

Over the last decade and a half the world has been subject to many traumatic events—the financial crisis, stringent austerity policies, deep slump in many economies, large-scale job losses, technological disruptions, creeping authoritarianism and ethno-nationalist excesses, increasing incidence of natural disasters (probably attributable to the on-going climate change), agro-ecological distress, mass dislocations, and a whole sequence of epidemics, the coronavirus being the latest. All of this has dangerously exposed the fragility and insecurity of the lives and livelihoods of billions of ordinary people. This has been particularly acute in developing countries, where numerous people live a hand-to-mouth existence even in the best of times, with very little in the form of social insurance. A universal basic income supplement can provide some minimum economic security in those countries, which even under the pressing fiscal constraints may not be unaffordable.

(Concluded)

The article was first published on 3 Quarks Daily. The writer is professor of Graduate School at University of California, Berkeley



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