Former Chief Economic Adviser Arvind Subramanian has proposed a quasi-universal basic rural income (QUBRI) of Rs 18,000 per year to each rural household, except those which are “demonstrably well-off”, at an estimated cost of Rs. 2.64 lakh crore to tackle agrarian distress.
A per-household annual transfer of about Rs 18,000, or Rs 1,500 per month, encompassing 75 per cent of the rural population, can be covered at a total fiscal cost of about 1.3 per cent of the GDP, or Rs 2.64 lakh crore (at 2019-20 prices), he says in a paper that he co-authored with Director of JH Consulting Josh Felman, World Bank Economist Boban Paul and Harvard University’s PhD student M.R. Sharan.
The paper titled “Quasi-Universal Basic Rural Income (QUBRI): The Way Forward” suggests that the burden should be shared between the Central and state governments in equal measure.
The proposal comes days ahead of the interim Budget in which an announcement of Direct Benefit Transfer (DBT)scheme for farmers is widely anticipated.
It says the opportunity created by agrarian stress can be leveraged to build the pillars of a new economic India in which inclusion, facilitated via some variant of a quasi-universal basic income, is center-stage.
Targeting an inflation-adjusted basic rural income of Rs 18,000 per household, Subramanian and his co-authors suggest that the Center should offer to finance one-third of it or Rs 6,000 upfront and without conditions, while the rest Rs 3,000 should be financed in the form of untying existing grants given to finance Centrally-sponsored schemes.
However, they warn that the scheme should not be financed from RBI resources or by the states or the Center breaching their existing fiscal commitments.
They say that the Center’s Rs 6,000 per household contribution would entail an expenditure of Rs 84,000 crore. which could be raised by eliminating or phasing out “demanding, duplication, and dysfunctional” agricultural schemes like interest rate subsidy for crop loans (Rs 15,000 crore), Fasal Bima Yojana (Rs 11,000 crore), additional MSP or price deficiency scheme (Rs 10,000 crore) and fertiliser subsidy (Rs 70,000 crore).
However, they add that the fertilizer subsidy should be phased out gradually over three years.
The paper says that the Center’s additional Rs 3,000 contribution could be met by the Center and states pruning about 15 per cent of the overall Centrally-sponsored schemes budget.
“The states would then have to find the additional resources to top up the Center’s QUBRI of Rs 6,000 (plus Rs 3,000). If QUBRI is politically attractive, states should be able to find the means and political will to to do so. They will have to cut subsidies (power and water) and other wasteful schemes.
“Competitive federalism pressures will exert itself on the lagging states to find the means to match the efforts of states that do more,” it adds.
Building on the Telangana government’s Rythu Bandhu and the Odisha government’s Kalia schemes, the authors suggest a direct cash transfer only to rural households, excluding the demonstrably well-off.
Critiquing the Rythu Bandhu scheme, it says its suffers from deficiencies like linking cash payments to land ownership and leaving out two highly-vulnerable groups – agricultural workers and landless labourers – while helping the richest and least vulnerable.
“Finally, even in terms of the beneficiary group – landed agriculturists – the scheme is regressive because cash payments are linked to the size of landholdings, so that richer landlords receive larger payments,” it adds.
It says the Kalia scheme announced by Odisha recognizes many of these deficiencies and builds upon it by extending it to all those engaged in agriculture regardless of land holding.
“So, in principle, Kalia is like a universal basic income but limited to ‘farmers’. Its chief disadvantage is one of implementation, requiring the identification of ‘farmers’ either as landlords, tenants or labourers. In practice, this could prove to be an implementation nightmare,” it says.
In their proposal, Subramanian and his co-authors recommend expanding the scope of the direct cash transfer beyond farmers to rural households arguing that while the crisis is agrarian, this has depressed the entire rural economy.
“So making the focus rural might be more effective at addressing the agrarian stress. Second, the transfer would not be to all rural households but all except the demonstrably well-off. This would make it not universal but quasi-universal,” they say.
The paper distinguishes QUBRI from Kalia stating that under the former, one doesn’t need to identify the beneficiaries (75 per cent of population as per their favoured model) but to identify the excluded (about 25 per cent of the population).
“So, QUBRI would not target IN the deserving poor but exclude OUT the demonstrably non-poor.”
Recommending implementation on the basis of the rural Socio-Economic Caste Census (SECC), the authors recommend payments in four installments-pre- and post-harvest for the two agricultural seasons with perhaps a slightly greater fraction of the payment for the pre-harvest installment to cater to agricultural investment and consumption support.
“Our preferred combination would be to target a transfer that would represent about 1/3rd of the current consumption of the poorest 40 per cent… This yields a per household annual transfer of about Rs 18,000 or Rs 1,500 per month.
“With this QUBRI, 75 per cent of the rural population can be covered at a total fiscal cost of about 1.3 per cent of GDP (or 2.64 lakh crores in 2019-20 prices).”
Proposing a 50-50 burden-sharing, the authors suggest that the Central and state governments should work together for its implementation since the Center can provide resources more easily while the states will have to play a critical role in implementing the scheme.
“If the center finances the entire amount, there would be serious moral hazard and lack of effort on the part of some states: they must have some skin-in-the-game. If the states were to finance most of it that could be unfair to the poorer states. That is why we propose a 50-50 burden-sharing rule below which seems a reasonable trade-off between equity and incentives,” the paper says.