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Anshul is a Political Science and Law graduate from the University of Delhi. He is interested in political, legal and policy developments and frequently writes on related themes. You can contact him on anshulkumarpandey [at] gmail [dot] com.

Tuesday, January 31, 2017

Universal Basic Income - Transformative Idea or an Ignis Fatuus?



The Economic Survey released today by the Finance Minister has endorsed the idea of a Universal Basic Income (UBI) - a form of direct cash transfer scheme which will replace the existing 'dolenomics' based welfare schemes such as the Public Distribution System (PDS), Employment Guarantee Scheme (MGNREGS), Mid-Day Meal Scheme as well as subsidies on food, fuel, fertilizers etc. One of the main reasons for introducing the UBI is the fact that it eliminates the leakages associated with traditional welfare schemes and hence is more efficient in its reach to the intended beneficiary and that it also gives a boost to the usage of the JAM (Jan Dhan, Aadhaar and Mobile) platform necessary for the realization of Digital India. 

What's wrong with traditional welfare schemes?

Traditional welfare schemes and subsidies such as those listed above are inefficient due to the human intermediaries involved - which means that while leakages can be reduced, they can never be completely eliminated, thus reducing the efficiency of these schemes. 

Another drawback of dolenomics is that it chains the poor and reduces her social mobility in a rapidly changing economic scenario. With a global trend towards urbanization indicating a shift of populations from rural areas to the cities, traditional welfare schemes which are largely intended for the rural poor, do not provide a social security net for those willing to climb up the social ladder and change their occupations or migrate to cities in search of work. 

Finally, there is a need to reduce the burden on the agricultural sector in order to make it profitable for those still willing to be engaged in it. This would require that the poor be given an option of spending their welfare amount in a way through which they can explore the opportunities available for them outside the rural environment.

How does a Universal Basic Income help?

A UBI unchains the concept of 'sustenance' from that of a 'job' allowing the beneficiary greater freedom to explore her area of interest. This is important to promote entrepreneurship in an age where jobless growth is the norm and increasing automation is leading to the reduction in the number of existing jobs. 

A direct cash transfer also eliminates any leakages associated with traditional welfare schemes, thus increasing the efficiency and reaching the intended beneficiary. It does this with the help of the government's JAM (Jan Dhan, Aadhaar and Mobile) platform, giving a further boost to the dream of Digital India and cashless transactions. 

Further, with the availability of money instead of hand-outs, the beneficiary has an opportunity to adjust her needs in accordance with changing variables of the economy, instead of standing in long queues or depending on the benevolence of the intermediary for her promised hand-out.

What are the implementation hurdles?

The current burden on the economy due to the existing welfare schemes is around 5.5% of the GDP. A Universal Basic Income based on the Tendulkar Committee's Poverty Line of Rs 33/day translates to about 11-12% of the GDP, which is unsustainable. A more feasible UBI would be around Rs 450 per person per month which would still translate to about 5.5% of the GDP.

Critics point out that instead of removing the current set of welfare schemes, the government should instead enforce the minimum wage law, release timely funds in case of MGNREGS, plug the loopholes in Mid Day Meal schemes and other subsidies rather than scrapping these schemes altogether to put in place a direct cash transfer scheme which would essentially come at the cost of the same fiscal burden on the GDP. What's more, if a UBI is to be implemented at all, they say, it must complement these welfare schemes instead of replacing them. That would increase the bargaining power of the poor.

However, as has already been pointed out, the continuance of traditional dole-out schemes is unsustainable in the longer run due to the changing nature of the economy and adding a UBI on top of these traditional welfare schemes as has been suggested by some critics is a recipe for fiscal disaster. The real hurdle lies in the scrapping of subsidies, which account for about 2% of the GDP at present, and whose removal is bound to snowball into a huge political controversy. 

What are the drawbacks of the UBI?

As with any public policy, Universal Basic Income too has its own set of drawbacks. India does not have a natural resource like the Oil Producing economies or an exceptionally well performing sector which can sustain the fiscal burden imposed by the UBI at times of economic downturn. Furthermore, fixing a particular amount as the UBI is counter-productive due to the fluctuating rates of inflation which means that at times of low inflation, the UBI may seem sufficient, and at times of high inflation, the same UBI may seem to be grossly insufficient. 

Countries like Switzerland, which conducted a referendum on the same, have seen the measure been voted down because the people there do not think it is a good idea. There is no data to support the contention that UBI will work wonders as it has not been implemented anywhere in the world so far.



Conclusion - The Way Forward

With 70 million people living below the poverty line, and 57 billionaires controlling close to 60% of the country's wealth - representing the twin challenges of poverty and inequality, coupled with jobless growth and growing social interest in the form of demand for reservation of jobs in public sector for socially advanced communities, India is facing multiple challenges which need transformative ideas in order to arrive at a solution. A Universal Basic Income is one such idea which deserves implementation because its merits outweigh its demerits at the moment. 

The government will have to find out ways in order to keep the fiscal burden generated by a UBI within 5.5% of the GDP in order to meet its own target of fiscal deficit of around 6-6.5% of the GDP. A flat tax rate under the Goods and Services Tax (GST), as proposed by the Subramanian Committee and removal of corporate tax concessions, which together will help save some 3% of the GDP, are some of the ideas which can help generate enough revenue to sustain a modest UBI.

Sunday, January 29, 2017

Building Walls and Banning Refugees - Will This Help Humanity?

This post was featured in Blogadda's Tangy Tuesday Picks 

"Every gun that is made, every warship launched, every rocket fired, signifies, in the final sense, a theft from those who are hungry and not fed, from those who are cold and not clothed." - President Dwight Eisenhower

The decision by 45th President of the United States, Mr. Donald Trump, to ban immigration from 7 Muslim majority countries and build a wall along its southern border with Mexico has sparked off a heated debate on the merits and demerits of such a policy. While majority of experts, scholars and commentators have condemned these policies by calling them divisive and short-sighted, a comprehensive evaluation of the subject is required before one can pronounce one's agreement or disagreement with their verdict. To understand the logic behind these tough immigration policies, it is important to explore the nature and scale of the refugee crises in different parts of the world which gives rise to such large scale immigration in the first place. 

Refugee Crises



The conflict in Syria between the government and western backed rebels is the immediate cause for the implementation of tough immigration policies by President Trump. The civil war and the struggle for power has rendered hundreds of thousands of Syrians homeless and has sent them to the shores of western countries in search of safety.

a) Causes of Refugee Crises 

Displacement and dislocation of a large number of people from their homes, leading them to migrate to other countries in search of safety and shelter, gives rise to a refugee crises. Some of the causes include conflicts between different countries, breakdown of political system and struggle for power within the country by different groups and persecution on the basis of religion, political affiliation, language, ethnicity etc. by authoritarian and dictatorial regimes.

b) Examples of Refugee Crises

Apart from the recent Syrian refugee crises, some of the other well known examples include persecution of Jews in Nazi Germany by Adolf Hitler, persecution of the Bengali speaking population in East Pakistan by the regime of General Yahya Khan, persecution of Tamil speaking minority in Sri Lanka and the persecution of Rohingya Muslims in Myanmar.

c) Refugee Resettlement Program

It is a system through which refugees are granted 'resttlement' in developed countries to live their life in peace and security and secure employment with government support. It underscores the commitment of developed economies to promote globalization and multiculturalism which is the bedrock of their economies. To a lesser extent, this system recognizes the historical role of colonization and imperialism as well as the damage caused by their continuing foreign policies. It is also a means of developing and building political pressure on authoritarian regimes to find solutions to their domestic political problems through dialogue rather than persecution. 

d) Associated Issues

Even when refugees are able to find asylum in a neutral/developed country, they face cultural dislocation and difficulty in integration with the local community. They also suffer from psychological and behavorial issues due to experience of immense stress and trauma.

President Trump's Immigration Policies



a) Building a Wall

i) Origin : Building a wall on the southern border with Mexico is one of the campaign pledges made by President Trump. One of his first actions after assuming Presidency on January 20th was to sign an executive order authorizing planning, designing and building of 1600 km long border wall with Mexico. The move is aimed at reducing rate of crimes allegedly committed by illegal immigrants and cracking down on smuggling of illicit drugs and other narcotic substances. The idea of a wall is inspired by the 230 km long wall constructed by Israeli Prime Minister Benjamin Netanyahu along the country's southern border with Egypt.

ii) Causes : The need for such a wall has been justified by the rising incidences of crimes allegedly committed by illegal immigrants, "rampant" drug trade due to smuggling of narcotic substances across the border and also the North American Free Trade Agreement (NAFTA) which has resulted in a $60 billion deficit in favor of Mexico. President Trump has repeatedly asked Mexico to pay for the construction of the wall as a part of measures to bridge this deficit.

iii) Impact : A wall maybe able to achieve substantially all three of its stated objectives i.e. reduction in illegal immigration, cracking down on smuggling of drugs and other narcotic substances as well as reducing the trade deficit with Mexico, but its demerits far outweigh the merits. Firstly, construction of a 1,600 km long physical wall will fuel resentment in the excluded population - a wall symbolizes hostility rather than friendship. It will also adversely impact the promise of America as a "land of opportunity" where everybody is welcome and the image of the country will take a hit. Finally, legal immigrants will face further checks and procedures and the procedure of immigration will become lengthy and difficult which will further disincentivize immigration and prohibit the exchange of human capital.

b) Ban on Refugees

Also referred to as the 'Muslim Ban' policy, this forms another key component of President Trump's immigration policy. Under this policy, immigration from 7 Muslim majority countries that are suspected to be "compromised by terrorism" is banned. These countries are - syria, Iran, Iraq, Sudan, Somalia, Yemen and Libya. The justification given for this policy is that it is aimed at overhauling checks and procedures of immigrants and pre-empting any incidence of religiously motivated terrorist acts. However, three Muslim majority countries - Pakistan, Saudi Arabia and Egypt - whose citizens have actually carried out terrorist attacks on US soil, do not feature in the list. Unfortunately, this policy refuses to recognize the role of US Foreign Policy in contributing to the refugee crises in the first place and fuels discontent and anger.



c) Reduction in H1B visas

Apart from banning immigration from several countries, President Trump has also made reduction in H1B visas as one of his targets by advocating more requirements such as a Masters degree and a yearly income of or above $100,000 mandatory for securing such visas. He has also warned companies against outsourcing American jobs and has advocated a policy of 'America First'. 

Conclusion

Protectionist, short-sighted and exclusionary policies that promote division, sow discord, take advantage of fear and insecurity of the people and advocate xenophobia and racism can never bear good news for humanity. The policies advocated and implemented by President Trump fall in the above category. As someone who stands for Christian values, he should turn to the Bible and remember the episode when God parted the sea for Moses and his followers who were similarly persecuted on the basis of their religion.