Daily Current Affairs – 7th January, 2017

Daily Current Affairs – 7th January, 2017

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If there is no change in consumption since 2011-12, there can be calculations made about the magnitude and efficacy of income transfer policy. (It is made on reasonable assumption as the real distribution did not change between 1983 and 2011-12).

The data of 2011-12 from NSS survey and assumptions of 2016-17 based on approx. consumption data from wage data for ploughman and carpenters.

  • There has been 58% and 69% growth in the wages of the poor and semi-skilled respectively in last five years. But the consumer prices just rose by 40% between 2011-12 and 2016-17. This background information for India, 2016-17, yields important policy conclusions.
  • The national poverty rate stands at around 20% where the average poverty gap with the higher poverty line is about Rs 300 per poor person per month.

(Poverty Gap= difference between the average consumption level of the poor and the relevant poverty line)

  • To reduce this new absolute poverty level from 20% to 0%, the government needs to transfer Rs. 1lakh crore (lc) on an annual basis. This is only 0.7% of the GDP
  • At present, the government spends Rs 1.75 lc — PDS 1.35 lc and MGNREGA 0.4 lc.

Hence, there is an efficient way for the government to eliminate poverty on an ongoing basis, and to help the lower middle class as well.

  • The defining line for the absolute poor should not be absolute — it should increase with the level of per capita income and should include the lower middle class.
  • The demonetisation will allow increased personal income tax collections around Rs 1 lc to Rs 1.5 lc annually.
  • Thus the government has total 3 lakh crores to redistribute (if PDS and MGNREGA are discontinued).
  • If the government uses income tax data and data on consumption of automobiles and two wheelers, the government can easily identify the bottom 50% of the Indian population which includes the poor and the lower middle class.
  • Without any strain on the budget, the government can transfer Rs 3 lakh crore to 265 million people, or approximately Rs 1,000 per person per month. This will result in a 50% increase in consumption for the (median) 50th percentile consumer and a 65% increase for the 25th percentile consumer.

Indian example

Professor Guy Standing of Europe-based advocacy group Basic Income Earth Network (BIEN) has been closely involved with three major pilot schemes in India—two in Madhya Pradesh and another in West Delhi.

In Madhya Pradesh, UBI was launched in 2010 where every man, woman, and child across eight villages were provided with a modest basic income for a period of 18 months.

This scheme improved nutrition among the children, healthcare, sanitation, and school attendance and performance.

The most striking thing observed was that emancipatory effect was greater than the monetary effect. It enabled people to have a sense of control. They pooled some of the money to pay down their debts, they increased decisions on escaping from debt bondage. Even the women developed their own capacity to make their own decision about their own lives.

Three pillars of possible existence

Administrative and technical viability

  • Targeted beneficiary programmes have seen lot of corruption, inconsistency and falsehood which ultimately denied the ‘targeted beneficiary’ the ‘intended benefits’.
  • Here, UBI completely does away with targeting and all the challenges that come with it.
  • It would be simpler, easier to administer, prone to less discretion, hence less rent-seeking, and have zero misdirection since everyone would be an eligible beneficiary.
  • Leakages would also be minimized if UBI is administered using the JAM (Jan Dhan Yojana, Aadhaar and mobile connectivity) trinity.

Fiscal affordability

  • Explained above

Political feasibility

  • This is the most challenging aspect of the UBI proposal as financing it involves elimination of existing benefits to some powerful interest groups.
  • However, it is one of the few policies where there is support from both the left and the right end of the political spectrum.
  • From the right viewpoint, it allows the recipient to decide how to spend money, there is less bureaucracy and less prone to corruption and exclusion and inclusion errors.
  • From the left viewpoint, it is a smart redistribution policy where the redistributed income directly reaches the poorer section, avoiding the leaky bucket problem.

Challenges

  • The belief that in-kind transfers and subsidies are ridden with corruption, while a cash transfer system using mobile banking to a largely poor and uneducated population will be corruption-free has to be backed by solid digital infrastructure.
  • The complete linkage of Aadhar with the bank accounts is still pending. Hence it will disadvantageous to population which is yet to have Aadhar card or bank account.
  • The income guarantee may adversely affect work incentives. Though it may be fundamentally and worryingly, negative view of humanity, UBI is actually expected to address some issues of insecurity. With a secured income in hand, there is chance for greater work choices for individuals than the current system offers. However, this still has to be contemplated upon.
  • It is afterall income and not welfare programme. So, there ought to be continuance of welfare programmes too. This might increase the financial burden on economy.

Conclusion

The governments of Canada and Finland are identifying the possibilities and exploring the aspects of UBI through pilot projects. The old system of income redistribution has broken as wages will continue to decline and insecurity will continue to grow. Though UBI is not a panacea but there is a need for a new income distribution system. Hence, there is a requirement to believe in progressive change wherein this debate is enthusiastically taken up to explore various dimensions which can have possible major impacts on socio economic canvass of the country, especially its poor population.

Connecting the dots:

  • Do you agree that Universal Basic Income will facilitate a more inclusive society with reduced inequalities? Give reasons for your answer.

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