Idea Cost and Solution of Universal Basic Income in India


Cost of Universal Basic Income in India


Idea of Universal Basic Income has been floating around in the world for quite sometime. It has started gaining traction in India as well because a national political party has proposed Universal Basic Income of Rs.321/- per day to every unemployed person of the country if the win Parliamentary Election 2019.


Let us delve into the details of cost and impact of this proposal on the economic health of this country. According to www.tradingeconomics.com, India's labor force participation in 2018 was 52.5%, which on the population of 1.284 Billion population, works out to be 674.1 Million or 67.41 Crore. Unemployment Percentage stood at 6.1% in 2018 which is highest in recent past and works out to be 41.12 Million. In 2018, workforce employed in agriculture sector in India stood at 42.5%, which works out to be 287.84 Million. This number can very well be put under underemployed workforce.


According to a report published in Times of India on February 5, 2018, workforce engaged in sectors other than agriculture but falls under unorganized sector stood at 111.1 Million on 11.1 Crore. Out of this number 60% are employed in it, which brings the actual number at 66.66 Million. So, roughly 354.50 Million of 35.45 Crore people can be brought into the category of underemployed.


Low skilled workers earned average Rs.10,900/- per month, though it may be lesser in rural areas. Proposed Universal Basic Income is Rs.321/- per day to unemployed people. If we work it out on annual basis, then total immediate cost will be Rs.475183 Crore or USD 67.31, which is 2.28% of India's GDP of USD 2948 Billion. But this is just one side of the picture. A big chunk of workforce who are underemployed will gradually start leaving the work and opting for proposed Universal Basic Income. This has the potential to take away Rs.4096610 Crore or approximately USD 580 Billion and it works out to be 19.86% of GDP of 2018. Let’s bring in one more perspective.


Since most of the low skilled workers are engaged either agriculture or manufacturing sector, this proposed UBI will pull down efficiency and productivity are of both the sector. Moreover, this proposed amount being not huge enough to encourage capital expenditure at family level, this will only increase consumer expenditure especially in food. Drop in supply and increase in demand will have magnifying impact on food inflation.


Challenges of Creating Employment


India’s unemployment rate was 6.1% and GDP grew at 7.3% in 2018. A simple thumb rule is, if GDP grows by 1%, it creates additional job by 0.5%. So, to cover up this job gap of 6.1%, GDP needs to grow at least by additional 12-12.5% immediately, which is not possible. India produces around 65 Lakh graduates and 15 Lakh Post Graduates every year. Moreover, it add around 1.2 Crore workforce in the market every year, which is roughly 2% of present workforce participation.


 It means, to cover this job demand growth, India’s GDP needs to grow by at least 4% from the present level. To cover the job demand growth, India’s GDP is required to grow between 11-12%. To cover the gap of additional 3% from this present gap of 6.1%, GDP needs to grow further by 1 to 1.5% for next 6-7 years. So, we can conclude that, solve the India’s job demand problem, GDP needs to grow by 13.5-14% for a period 7-8 years, after that it can settle for 11-12%, nothing less. 


If we add the underemployment problem, the situation will become quite sever and looking at micro and macroeconomic environment, this is an impossible feat for any government. Actually, the socialist economy we chose to become after independence made us a risk-averse nation and we as a nation become the country of job seekers. To consolidate our financial and social position, we kept adding degrees to individual kitty. We kept adding slabs to make our position higher and make it difficult for others to reach, but we remained committed to be servant and subservient someone or other. Entrepreneurship is the only option and the environment should be made conducive for it. “Ease of doing business” comes later; government should focus on “ease of starting business” and “ease of sustaining business for initial years”. Parents also need slow down in chasing this engineering and seven figure salary dream for their ward. They must not set the value of life in terms of money only. 


Land Reform as a solution


India’s total workforce is around 675 Million, out of it, 42.74% or 288.11 million are employed in agriculture, 23.79% or 160.37 million are employed in manufacturing sector and 33.48% or 225.69 million are engaged in service sector. Agriculture sector contributed 15.87% of GDP, which in real terms for 2018 will stand at USD 468.85 Billion. Manufacturing sector and services sector contributed 29.73% and 54.40% respectively for the same year which in real term will stand at USD 876.44 Billion and USD 1603.71 Billion. If we extrapolate these numbers, then we find out the productivity of a person employed in agriculture sector and manufacturing sector stood at USD 1623.85 and USD 5465.17 respectively against USD 7105.86 of service sector. 


We all know that more than anything else, the size of land holding and land holding pattern of the country are biggest bottleneck of increasing agriculture productivity. According to Agriculture Census, operational land holdings in India are 138.35 million hectare with an average size of 1.15 hectare. Out of total holdings, 85% belongs to small and marginal farm categories with less than 2 hectare. This size is hampering the mechanization of agriculture in big way hampering not only production but overall productivity as well creating income and social disparity, which often forces workforce to abandon field and move to urban areas in search of employment, creating even bigger problem of underemployment. Though small scale industries can help in solving the employment problem to some extent, but large industries are required for capital formation, job creations at all levels and have multiplier effect on the nation’s economy. But establishing big industry has been facing the biggest challenge of land acquisition. Since this issue is connected with small and marginal farmers, it gives huge political opportunity any political party. Singur in West Bengal is latest prime example of challenges of land acquisition in the country. More than anything else, education and transparency in dealing are two prime steps which should be taken by the government. Since size of landholding is very small per farm household and their dependency is huge on that small land, parting away with it becomes more of a emotional challenge than financial challenge. The fear of going broke completely can be aroused in the owner’s mind. Second challenge is the circle rate. Normally, lands are registered at very low value in government records than what actually it has been sold. If the circle rate is very low than “prevailing market rate”, then obviously it will create a problem because government compensation will depend on the circle rate and not on the “prevailing market rate”. In every business transaction, all the parties look for something extra, so, if there are employment opportunities or the opportunity to provide services which can be given to locals, either after training them or by without training, then it must be discussed in advance and in transparent manner with complete agreement. And all of it needs to be told to the land owner in no unclear terms and in fact it must be the part of information which should be inculcated to every Indian like it has been done in the case of polio immunization or similar drive. This will not only help manufacturing sector but agriculture sector as well. Increased production will mean increased productive participation, increased productivity, increased income in the hands of workforce and new employment opportunities.

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