From NREGA to Universal Basic Income

Published: Sunday, 11th December 2016

The Mahatma Gandhi National Rural Employment Guarantee Scheme, popularly known as NREGA, was launched after the passage of the landmark Act of the same name in 2005. It is the largest such employment based anti-poverty programme in the world. As the name suggests, it guarantees gainful employment to people in rural areas. This work has to be provided on demand. If in peak season or in good times, plenty of work opportunities are available elsewhere, then no NREGA work needs to be provided. But in times of distress, such as during a drought, then the government is duty bound to provide up to 100 days of manual work to at least one member of every household which demands it.  If the work cannot be provided, then an allowance has to be paid on a per day basis.

Despite all of its carefully designed features and past learning, the NREGS has performed well below its potential. On average over the past decade, each eligible household received only 45 days of work against the guarantee of 100 days of employment. 

The NREG Scheme (NREGS) has been subject to official as well as social audits, and its success is mixed, although the concept is rock solid. It provides a proxy for unemployment insurance, which is absent in India. It is also a poverty alleviation programme, although that outcome is a side benefit. It provides opportunities for significant female labour force participation.  It is supposed to create rural assets like forestry, roads, percolation tanks, although the primary motive is manual jobs creation. It often provides day care for kids of working women. Since payment is directly into workers’ post office or other bank accounts, pilferage is less common.

But despite all of its carefully designed features and past learning, the NREGS has performed well below its potential. On average over the past decade, each eligible household received only 45 days of work against the guarantee of 100 days of employment. For some States, this average is even lower. In the first seven years, up to 70 per cent of poor households did not receive any work at all. Even during peak distress of a drought, only 14 per cent households have ever received the full 100 days of employment. In the last five years, the total NREGS employment that was created, measured in person-days, has halved from 2.84 to 1.49 billion. Incidentally this represents about less than 2 per cent of the total employment created in the rural areas in one year.

Just as NREGA is rights-based entitlement programme, another one is the concept of a Universal Basic Income (UBI) which is currently under consideration.  A secure, productive and well-paying job is what most people in the labour force want. That cannot be guaranteed in general, not even in India’s rural areas, as the limited success of NREGS tells us. Jobs are needed for income security and poverty alleviation. Since only 10 per cent of India’s labour is in the organised sector, unemployment insurance is not a remedy.  

A direct and universal cash benefit can replace ill targeted subsidies on cooking gas, fertiliser and food grain. It can reduce inefficiencies and distortions that are inherent in a price control regime. India spends an estimated 4.2 per cent of GDP on subsidies on food, fertiliser, electricity, oil, water, and rail services, as documented in the Economic Survey.

Another form of income transfer is needed, which is what UBI is. The other big reason is that the nature of work, jobs and livelihoods itself is radically changing.  In a world of robotics, artificial intelligence and rapidly changing technologies, it is difficult to predict where the next wave of jobs is being created or where jobs will be lost. For instance, e-commerce led to the boom in logistics services, whereas app-based cab services are causing job losses in conventional sectors employing drivers. With UBI, we focus and promise a basic income transfer, not a job. That UBI amount can help people not fall below poverty line, while they wait for the next elusive job, or fight an illness in the family. Moreover, UBI makes it possible to eliminate a host of subsidies that are supposed to help the poor, but aren’t.

A direct and universal cash benefit can replace ill targeted subsidies on cooking gas, fertiliser and food grain. It can reduce inefficiencies and distortions that are inherent in a price control regime. India spends an estimated 4.2 per cent of GDP on subsidies on food, fertiliser, electricity, oil, water, and rail services, as documented in the Economic Survey. Much of these subsidies do not reach the intended beneficiaries. Targeting is imperfect. An untargeted UBI framework can make it possible to reduce or eliminate price distortions, and have a better efficacy of the income subsidy.

The idea behind UBI is like guaranteeing a dividend to each citizen, for being part of India. It is also supported by right wing economists, as a negative income tax, receivable for everybody with a zero income. It removes the stress and anxiety of workers and households who face irregular monthly incomes. Many countries are already toying with this idea, and it has been introduced on a pilot basis in Canada.

The question is not whether UBI should be adopted, but how, and what would be its cost. One of the recent champions of UBI for India has been Professor Vijay Joshi of Oxford University. Joshi estimates that if existing and badly functioning subsidies are rationalised, pruned and the overlaps removed, UBI can be rolled out at a cost of around 3.5 per cent of GDP. This is well below what is currently collectively spent on all subsidies at central, state and local level. It will roughly be equal to say, an amount of Rs. 5,000 per person per year.

The UBI is based on a Gandhian principle: societal welfare is determined by how we treat our worst off.  The case for fiscal affordability of UBI has been very strongly presented by Professor Joshi in his book and research.  With recent demonetisation and its possible fiscal benefit, plus added fiscal resources from GST, the affordability of UBI will hardly be an issue. Digitally networked India, with unique identity for every citizen makes it easier to implement. UBI is thus one step forward, albeit a more effective one, in ensuring all round inclusive growth in India. It follows in the steps of the rights based paradigm of development symbolised by NREGA.

(The writer is a senior economist based in Mumbai)