Will Modi Launch Universal Basic Income scheme in India ?

December 30, 2016 · Author: · Category: / 

The demonetisation move announced by the Narendra Modi led Government is creating a great deal of inconvenience for the electorate. We had therefore said that we expect the Government to consider launching a Universal Basic Income (UBI) scheme on a pilot basis in FY18.

What is the Concept of Universal Basic Income Scheme ?
Dr. Vijay Joshi in his recent book titled “India’s long road – The search for prosperity” expounds the concept of Universal Basic Income (UBI). According to him, the current system of subsidy disbursements is extremely inefficient since the system has limited success in targeting the deserving and also suffers from leakages. He proposes that a basic income of about Rs 17,500 per household per year be launched which should cost 0.8% of GDP if 22% of India’s population is covered. 22% of India’s population corresponds to 58 million poor households. Therefore, the total cost of providing Rs17,500 to 58 million households will be approximately Rs1.02trn or 0.8% of GDP.

How can UBI be funded?
Dr. Joshi recommends that such a scheme should be funded in the long term by discontinuing India’s extensive dysfunctional subsidies, such as food, fertilisers and kerosene, which in turn could free-up resources to the tune of +7% of GDP as per his estimates.

As of December 1, 2016, 256 million Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts exist in India. These accounts are expected to be spread across 211 million households as against the total number of households of 248 million that exist in India. As regards Aadhar cards, of India’s population of 1.3 billion, 84% possess Aadhar cards as on November 15, 2017.

Neither the announcement of UBI for the poor nor a drastic cut in income tax rates will lead us to change our economic point of view radically. This is so because Government consumption expenditure forms a small part (~11%) of the GDP.

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