Universal Basic Income? Telangana has the answer

Telangana’s Rythu Bandhu policy is an embryonic UBI, or rather embryonic QUBI (a quasi-universal basic income, pronounced Kyoo-Bee). And it could potentially also be the future of agricultural policy in India, says Arvind Subramanian.

One question I am increasingly asked is this: yes, the Economic Survey ('A Conversation With and Within the Mahatma') raised the profile of Universal Basic Income as a serious option, but has it had any resonance in policy circles?

Or, more starkly, is UBI actually being implemented anywhere in India? My answer is a qualified yes.

Telangana’s Rythu Bandhu policy is an embryonic UBI, or rather embryonic QUBI (a quasi-universal basic income, pronounced Kyoo-Bee). And it could potentially also be the future of agricultural policy in India. Let me elaborate on both.

As the Economic Survey made clear, India will never provide basic income that is literally universal. Our politics will never countenance government cheques being sent to the rich.

But government transfers to everyone except those at the top is a serious policy contender. And such a scheme would be a QUBI.

More generally, QUBIs are schemes in which transfers are given to everyone who meets an easily identifiable criterion. That is, they are universal within a clearly identifiable category.

In the Rythu Bandhu scheme that category is all farmers who own land.

This criterion can be applied because Telangana has titled nearly all land holdings, and has done so in an impressive fashion, without serious controversy or contestation within a short space of time.

Rythu Bandhu has, however, one undesirable property as social policy.

Because payments to households are based on farm size, they can become regressive (hence the pressures to exclude large farmers from the scheme).

In contrast, a pure UBI in which the same rupee amount is given to all households will be progressive because the effective subsidy rate (transfers as a share of household income) will be greater for the poor and decline with rising income.

Karnataka has been contemplating a scheme similar to Rythu Bandhu and it seems that other states could follow.

The key administrative challenge is establishing land titling but states are beginning to make progress on that.

Of course, Rythu Bandhu is mainly intended as an agricultural rather than a social policy. In fact, viewed from this perspective, it could be the future of agricultural policy.

Consider how. Think of the current system of support for agriculture. Right now, there are schemes for every possible state of the world.

There are schemes for bad harvests (monsoon failures) such as crop insurance and loan waivers.

There are schemes for good harvests (bumper crops that depress prices) such as MSP-plus-procurement and price deficiency schemes.

And then there are schemes independent of outcomes such as the various subsidies on inputs (fertilisers, seeds, power, and water).

Rythu Bandhu today is provided in addition to these schemes and hence can become fiscally unsustainable.

However, if Rythu Bandhu is used to replace some or all of these schemes, three critical advantages would ensue.

First, the surfeit of state capacity/administrative apparatus as well as financial resources -- and all the patronage and corruption and inefficiency -- devoted to administering the plethora of schemes for good, bad, and all states-of-the-world could be economised on.

Second, farm income could be decoupled from production, avoiding the serious distortions that have been created, especially from over-production of cereals (rice stocks are becoming pest-infested mountains) and the over-use of water and fertilisers.

Third, the magnitudes that can be transferred can be increased so that farm incomes can be augmented substantially and quickly.

One illustrative calculation is as follows: eliminating the fertiliser and power subsidy in Punjab would finance an annual transfer of about Rs 92,000 to every cultivator or Rs 50,000 to every agricultural worker.

This compares with median agricultural household income of Rs 150,000 in Punjab, according to official estimates for the year 2013.

That said, it will take some time and effort before schemes like Rythu Bandhu can be adopted in other states.

First, they will have to introduce comprehensive land titling. Second, a decision will need to be made whether the scheme should be more social policy or agricultural policy. As agricultural policy the per-acre payment has a rationale.

But as social policy Rythu Bandhu will have to be rethought and replaced by something more progressive: for example, a common payment to all households just conditional on being a farmer.

Also, it will be important to bring cultivators into the fold, as not all those who derive their income from agriculture are land owners.

Under Rythu Bandhu the hope is that market forces will lead to land-owners sharing some of its benefits with agricultural labour. But that might not be effective.

Fourth, the usual pressures to cater to various groups -- such as providing differing amounts of assistance to different types of farmers or different types of agriculture, irrigated versus rainfed -- will lead to demands for finer targeting.

This will lead to complexity of implementation as was seen with the GST. This temptation must be avoided.

The final challenge -- or rather an opportunity -- is this. Schemes like Rythu Bandhu must be done within a cooperative federalism framework, not least because of a fundamental complementarity: states control the implementation apparatus (namely, the land titling) while the Centre can provide resources.

A kind of Grand Bargain is thus possible between the Centre and the states.

For example, the Centre could offer to finance part of the scheme, finding the funds by reducing the fertiliser subsidy.

Alternatively, the Centre could convert some of its tied transfers into untied ones, giving states the freedom to use them for schemes of their choice, including QUBI to farmers.

The Economic Survey argued that UBI offered an opportunity to eliminate poverty in one stroke or rather one click (for cash transfers).

A QUBI like Telangana’s Rythu Bandhu scheme -- with some modification, preparation, and cooperation -- affords a similar opportunity: it could augment farmers’ incomes and reduce agrarian distress in a way that is good social and even better agricultural policy.

Photograph: Amit Dave/Reuters.

Arvind Subramanian is the soon-to-be former Chief Economic Adviser to the Government of India.