Budgeting for the bottom of the pyramid

Universal Basic Income cannot be a solution to India’s structural problems that are depressing the income growth of workers

Every year there is a hype when the Finance Minister presents the Budget. Though the principal purpose of the Budget is to deal with the accounts of the government, people look to it to gauge which way the country will be heading. In an election year, the government will present only an interim Budget to keep it going till after the elections. However, with the elections in mind, the Finance Minister may use the occasion to announce the government’s policies if elected again.

Indian politics have been on a boil for the last three years, with issues related to the distress of small farmers, the impact of demonetisation on small enterprises, and the dearth of jobs. Low and uncertain incomes in the lower half of the economic pyramid are driving the political agenda.

Some economists are producing statistics to prove that the economy is creating enough jobs. Their numbers cannot convince the millions of people, many graduates, who cannot find any good job.

In fact, the pressure on the Central and State governments to find solutions for the uncertain incomes of farmers and seekers of good jobs, has caused State governments to come up with a flurry of schemes to support farmers’ incomes, and pushed the Central government to expand the ambit of job reservations even to socially forward communities.

Last year, in the Economic Survey, presented before the Budget, the Chief Economic Advisor had proposed a Universal Basic Income (UBI) to be provided by the government to people, whether they have work or not, as a solution to the growing problem of low and uncertain incomes. This idea has been receiving a lot of support from academic economists in India and elsewhere.

Many of them had been critics of MNREGA which guaranteed some income to people who needed it provided they did the work offered to them. According to these economists, MNREGA was a very ‘socialist’ idea, because people should be engaged in productive enterprises and should not expect doles from the government.

Nevertheless, these economists support UBI, though it is even more ‘socialist’ since it does not expect people to do any work at all to get the income supplement.

Ideological barriers

The concept of a UBI has broken down some ideological barriers between economists with ‘socialist’ and ‘capitalist’ leanings. Therefore, one can expect politicians on all sides to jump on the UBI bandwagon. It justifies their offering doles at election time, which otherwise economists criticise them for. Indeed, Rahul Gandhi seems to have already jumped the gun and offered a universal income if the Congress is elected. What is the Finance Minister going to now say in his Budget speech?

The Finance Minister must say something about what his government (and his political party) will do about the problem of too few secure jobs and too little secure incomes for the masses of people who will be voting in a few months. Will he present a set of numbers to try and convince people that Aache Din are already here? Or, admit that there is a big problem and suggest what his government will do to solve it?

The country’s biggest problem is that, while GDP has been growing, incomes for people in the lower half of the pyramid have not been increasing enough. The problem is not inadequate growth of the size of India’s economy, but with the shape it is taking. It is lop-sided. Too little wealth seems to trickle down, while a lot seems to be going up to people at the top.

Oxfam and others have been pointing out that the numbers of billionaires being produced by the Indian economy is increasing faster than almost every other country. On the other hand, incomes at the bottom are not growing as well. Moreover, India lags in the pace of improvement of human development indicators — basic education and basic health, compared even with some of its poorer sub-continental neighbours.

UBI cannot be a solution to India’s structural problems. If the UBI has to be enough to meet all citizens’ needs, the resources required by the government will be too much. Financial markets want the finance minister to keep the budget deficit low. Companies and rich people who have the resources to pay more taxes argue that higher taxes will reduce their incentives to invest.

The finance minister has little wiggle room. He cannot find the resources to provide for an adequate UBI and balance the budget at the same time.

Since this is an interim Budget, he can kick the can down the road. Offer the moon to get elected, and then face up to the structural problems of the economy afterwards.

Growth chokers

Structural problems of the Indian economy that are depressing growth of incomes in the bottom half of the pyramid are: one, the terms of trade are set against small enterprises, and, two, the terms of employment are set against workers in informal and temporary employment — that is, over 95 per cent of India’s workers.

Prices of tiny enterprises (and small farmers) are pressed down by large buyers. Workers in insecure employment have no power to bargain for better terms of employment. When farmers begin to organise large rallies, and when underemployed youth rally to demand more jobs, politicians take notice. Then, with the gun to their head, politicians respond with populist schemes.

A financial budget cannot provide solutions for the deep-set structural problems of the Indian economy. Political solutions are required. Equitable as well as economically sustainable solutions will be found when tiny enterprises are helped to form strong associations, and workers are encouraged to form good unions.

These associations of small enterprises and unions of small people must be invited to sit at the table in policy formulation. They should not have to block the streets for their concerns to be heard. When will this happen?

The writer is a former member of the Planning Commission and author. (Through The Billion Press)

[“source=thehindubusinessline”]