The meaning of ‘basic income’ can be construed as programmes in which payments are high enough to meet basic living expenses.
A piece of recent significant news is that tax on superrich can fund Rahul Gandhi’s NYAY, as said by World Inequality Lab, a Paris based organization. Under simple assumptions, a 2% tax on total wealth on households owning more than Rs. 2.5 crore of wealth (the top of 0.1% of households), would yield Rs. 2.3 trillion or 1.1% of GDP. Guaranteeing a minimum income of Rs. 72000 to households with an income of Rs. 12000 or less would cost Rs. 2.9 trillion or 1.3% of GDP in 2020, the World Inequality Lab said in a report.
According to N Chandra Mohan in Hindustan Times (January 10, 2017), taking out all subsidies, reducing unnecessary tax exemptions, taxing agricultural incomes among other measures frees up resources up to 10 percent of the GDP annually.
Another report, ‘The Widening Gaps: India Inequality Report 2018’, alleges that the wealthiest individuals in India (it pegs the total wealth of Indian billionaires at 15 percent of the GDP, has risen from 10 percent only five years ago) have cornered a large share of their wealth through ‘crony capitalism’ and inheritance, while people at the bottom have been seeing their share reduced further. The report pointed out that the path of inequality has changed in India — from being stagnant in the 1980s to increasing since 1991 and to a subsequent and continued surge up to the present.
The Organisation for Economic Co-operation and Development suggests that reducing inequality through tax and transfer policies does not harm growth, so long as the chosen policies are well designed and implemented. They argue that redistribution efforts should focus on families with children and youth, and improvements in human capital investment by the promotion of skills development and learning. Governments can intervene to promote equity and reduce inequality and poverty, through the tax and benefits system. This means employing a progressive tax and benefits system which takes proportionately more tax from those on higher levels of income and redistributes welfare benefits to those on lower incomes. It can support sectoral training, apprenticeships, and earn-while-you-learn programmes; maintain and strengthen safety net programs such as welfare, unemployment benefit, universal healthcare, homeless shelters, and sometimes subsidized services such as public transport, which prevent individuals from falling into poverty beyond a certain level.
The concept of Universal basic income (UBI) is a sum of money provided by the state to all citizens to take care of their bare necessities of life. This measure is intended to provide a safety net, preventing any citizen from sinking below a basic minimum standard of living. The argument for a basic income for all is not only in the interest of the poor but also in the interest of the rich to maintain social order and rule of law. In China, there is already a kind of minimum livelihood guarantee, set at different levels in urban and rural areas, that adds to the incomes of those categorized as poor so that they reach a certain minimum. Thomas Paine was among the first to argue that a basic income should be introduced as a kind of compensation for dispossession. Hence, the meaning of ‘basic income’ should be construed as programmes in which payments are high enough to meet basic living expenses.
With protectionism resurfacing all around and to fight the recessionary trend, it is necessary to boost domestic consumption demand. UBI will mostly go to the poor and rural segment where marginal propensity to consume is high and therefore consumption demand will substantially go up.
But how can it be funded in India? One answer has been provided by World Inequality Lab as detailed in the 2nd paragraph. Also, according to N Chandra Mohan in Hindustan Times (January 10, 2017), taking out all subsidies, reducing unnecessary tax exemptions, taxing agricultural incomes among other measures frees up resources up to 10 percent of the GDP annually. If we take out 3.5 percent of GDP for UBI, this would entail Rs 5.32 lakh crore which is double the budgeted subsidy bill for 2016-17. Even otherwise, consequent and subsequent to demonetization, tax accrual has substantially gone up and, therefore, funding of a none too ambitious programme for meeting minimum basic needs should be possible. And proper distribution is possible through the Direct Benefits Transfer method.
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.