Low-Ticket Welfare In Modinomics May Pave The Way For UPA-3

This year’s budget left both the critics and supporters of the government surprised. With assembly elections in five states, including the most electorally important one in Uttar Pradesh, coming close on the heels of the budget, most were expecting a populist document. But it wasn’t the case.

Harish Damodaran, no friend of the Modi government, has praised the Prime Minister and hailed the budget for not deviating from the path of fiscal consolidation. “Narendra Modi may be anything, from Superman to Tormentor, depending which side you are on, but one thing he certainly isn’t - a populist,” he conclusively notes in the Indian Express. One other critic called the budget “typically competent”. “Fiscally prudent” was another compliment the government received for its budget.

When critics lavish such high compliments on you, something is amiss.

One needs to reflect: when has any government won a re-election by not being populist? It almost never happens, especially in a poor country like India. So, are people who are praising you to the hilt for not being populist really your well-wishers, or are they following the dictum that “when your enemy is jumping off the cliff, give him a push”?

Then one needs to ask: Is being populist unwise, and does populism necessarily have to go against the principles of fiscal prudence? There are many types of populists and several kinds of populism. Demonetisation and surgical strikes were also populist moves. But let’s focus here only on the aspect of financial populism.

After it became clear that the Economic Survey 2016-17 was going to have a chapter on universal basic income (UBI), many were looking forward to reading the document. UBI, or an Indian version of it, could be seen as a kind of cash transfer that would replace some major subsidies. However, doubts were already cast upon the idea by NITI Aayog Vice Chairman Arvind Panagariya, who said the the programme wasn’t feasible as it would involve an expenditure to the tune of Rs 15 lakh crore to provide a UBI of Rs 1,000 (per month) to 130 crore Indians.

The Survey stopped short of endorsing the implementation of UBI. Concluding the chapter after weighing the pros and cons, it noted that “UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion.” Discuss we must.

First, it is no one’s case, certainly not that of the fiscal conservatives, to provide UBI to all Indians. A reasonable number of targeted recipients can be around 30 crore. It doesn’t make sense to give Rs 12,000 a year to the better-off. Identification and targeting is a big challenge that will have to be overcome. This is no mean task and would require serious work on the part of the government.

Second, one is not calling for UBI as an add-on package over and above the current doles. But neither is one calling for abolishing all existing subsides. We need to find a middle path which means budgeting only for the cost of the UBI subsidy, which would be approximately Rs 3.6 lakh crore if we only give it to the poorest 30 crore Indians. Its cost comes up to around 3 per cent of the GDP if we throw in a few thousand crores more.

Some fiscal conservatives are perplexed as to why the right-of-centre folks on the economic spectrum are advocating such seemingly financially unviable schemes which the Economic Survey has warned about. In fact, the high priests of ‘laissez-faire’ like Milton Friedman, Friedrich Hayek and Adam Smith Institute are also big fans of UBI.

It is fine if those who oppose UBI are fundamentally against the idea of government giving out doles. But we don’t live in an ideal society, and the choice is not between giving or not giving subsidies. It is more about picking between efficient cash transfers and an inefficient subsidy regime. As this Swarajya column argues, UBI should be seen as redistribution of currently-paid subsidies to enable people to eliminate market distortion, and offering citizens a choice as to what they will spend their subsidy money on.

Ninety-nine percent of households have Jan Dhan accounts, 88 per cent have Aadhaar cards. Mobile penetration and cashless transactions are increasing rapidly with every passing month. This means that the basic infrastructure required to roll out UBI is now in place.

Now the choice is between a United Progressive Alliance-style fiscally irresponsible subsidy regime and smart welfare. Prime Minister Modi has shown his inclination to champion the latter. The transparent auction of national resources and weeding out of fake beneficiaries with the use of technology has saved thousands of crores for the treasury. But is the common man sensing the benefit?

The benefits of treasury gains are not trickling down. The Prime Minister also wants to transfer ‘100 out of 100’ paise from the government to beneficiaries, thereby removing leakages and cutting government wastage. That was the main purpose behind establishing the JAM trio. But this aspect of smart welfare is helping the government, not the people yet.

Modi’s dilemma is that he doesn’t want to give freebies, but knows very well that he cannot possibly win the 2019 general election without showing he is pro-poor. So, he does all he can to give the appearance of a populist without actually being one. Well aware of the fate that befell the Vajpayee government, he is in no mood to repeat the mistake.

But there doesn’t have to be a dilemma. He can actually give money to the poor more efficiently and by cutting inefficiencies that crop up in the middle. He can do so by replacing major subsidies with a monthly transfer of fixed amount to the poor.

Modi may go in for a version of UBI or transfer of a certain amount to Jan Dhan accounts next year, six months before the general elections. That may work. However, if he thinks that he is here for 15 years and is operating with that in mind, he may be in for a rude shock. Incrementalism and timidity in embracing radical welfare reforms may cost him dearly.