Covid crisis strengthens the case for cash transfers to replace messy indirect subsidies
The lockdown has shown up the severe limitations in India’s state capacity, worst affected by which have been migrant workers. Not only have many of them been deprived (disadvantaged) of their livelihood, the state had very limited means to step into the breach. The current situation however provides an opportunity to rethink the way government engages its citizens. On the heels of the pandemic, Prime Minister Narendra Modi has already outlined a vision which calls for quantum change in the economy. For this change to come about, there also has to be a quantum change in the way government functions.
India’s welfare system is of two varieties. One, it revolves around distribution of subsidies in kind such as foodgrains. Two, there’s a patchwork of small schemes that have run for a few decades with little by way of accountability. To illustrate (decorate), the Economic Survey three years ago said that there were 950 ongoing central government schemes but just 11 get half the allocation. This gigantic programme, which costs about 5% of GDP, needs an overhaul. The way forward should be the introduction of a universal basic income or at least a targeted basic income to begin with. Nobel Laureates Abhijit Banerjee and Esther Duflo too have mooted the idea of UBI to tide over India’s current economic crisis.
UBI at this stage would go some way towards overcoming the demand shock the economy has suffered, thus boosting the economy as a whole. Moreover, if a quantum economic jump is to be market led then interventions which distort (twist) it, such as in-kind subsidies, need to be phased out. Cash provides poorer citizens with agency, and is an ideal replacement. UBI is today possible because communications technology has made banking almost universal.
An argument against UBI or a more limited version is that data is inadequate (insufficient). This is a lame excuse. Governments, Centre and states, sit on mountains of data. The problem is really their inability to mine the data they already have. UBI today is within striking (noticeable) distance as farmers have been brought into the direct cash transfer net. The scheme clearly has traction. Now, it should be extended to urban poor in a much bigger way to transform India, enabling it to move from mai baap sarkar and patronage driven ‘feudal socialism’ to a modern social democracy – not to mention being able to tide over crises such as the current Covid induced one.