Editorial Notes

[Editorial Notes] To ride out Great Lockdown, India needs an Emergency Basic Income

Government of India needs to act immediately to provide universal basic income to the precariat. Else, it may have to face dire political consequences.
By IASToppers
April 20, 2020

Contents

  • Introduction
  • A relief programme at scale through Emergency basic income
  • Why EBI is the need of the hour?
  • Challenges of EBI
  • Suggestions
  • Conclusion

To ride out Great Lockdown, India needs an Emergency Basic Income

For IASToppers’ Editorial Simplified Archive, click here

Introduction

  • Unlike a normal slump, when policies can be tailored to finance and raise demand, however, the challenge due to COVID-19 is keeping productive capacity intact, even as many firms and workers remain idle.
  • Nobel Prize-winning economist Paul Krugman termed this the “coronacoma“, the economic equivalent of a medically induced coma, in which some brain functions are deliberately shut down to give the patient time to heal.
  • Using a similar analogy, International Monetary Fund’s chief economist argued for a preservation of the economic system while the Great Lockdown lasts.
  • As Krugman argued, the economic response to the crisis will have to include two parts:
    • One, an immediate disaster relief component that ensures survival of both firms and workers who have been rendered idle.
    • And, two, a stimulus component that aims to repair and restart production lines during the exit phase of the lockdown.
  • For a country like India, the immediate disaster relief component is going to be much tougher than stimulus component.

A relief programme at scale through Emergency basic income

  • India could launch a relief programme at scale without compromising macroeconomic fundamentals by having a generous, but provisional aid programme, which is unconditional and universal.
  • Think of it as a universal basic income, but one that is subject to a rollback when normalcy returns. This could be called as EBI (emergency basic income).

Why EBI is the need of the hour?

  • Due to lockdown, millions may lose their incomes and face difficulty in receiving things of daily necessities for survival, resulting in social unrest. The EBI could solve this unrest.
  • Also, some states have announced enhancement of rations under the Food Security Act. However, with broken supply chains and crumbling logistics, it may have its own challenges.
  • The current circumstances in which people are trapped in lockdown are varied. The EBI allows an individual to control their mitigation strategies and priorities. Hence, EBI will complement the steps (providing essential goods through PDS) taken by the government.
  • EBI might be the most effective and fastest intervention of eliminating poverty trap created by the current crisis.

Challenges of EBI

  • Without resorting to some off-budget borrowings, it may not be possible for the Union government to fund EBI.
  • Even if the government cuts back on some non-essential expenditures for certain welfare schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme for an EBI, it may still not be enough to fund a generous EBI.
  • Implementing EBI will be the harder challenge compared to funding it. Although almost everybody has a unique ID by now (Aadhaar), not everyone has a functional bank account or access to mobile or internet (for e-transfers).
  • The latest district-wise data from the National Family Health Survey (2015-16) showed that despite gains in access to bank accounts and mobile phones, there were still significant disparities across districts. Internet access was limited across most districts.

Suggestions

In-kind transfer component

  • Hence, EBI must also include an in-kind transfer component. The ratio of cash to in-kind transfers is something that is best left for states to decide.
  • The Centre’s role should be to enable funding for this programme so that states can focus on fixing implementation glitches rather than having to worry about finances at a time when their resources are already stretched.

Other unconventional options

  • Like other countries, India too could explore unconventional options, such as a special purpose vehicle, to fund this programme as long as the Great Lockdown lasts.
  • Such a programme with a fixed and transparent sunset clause can inspire the confidence of both ordinary citizens and bond markets, and help resolve the trade-off between lives and livelihoods.
  • It would also be possible to ramp up or ramp down the quantum of aid at any place or time, depending on the stringency of lockdown measures.

Conclusion

  • In the COVID-19 outbreak, several countries are considering massive fiscal stimulus packages and printing money, to blunt the concurrent crises underway: the pandemic and the unravelling economic depression.
  • In such situation, Emergency basic income will not only arrest potential social unrest but also ensure that there is continued aggregate demand to sustain our economy.
  • However, this need to be strategic and sustainable. Because in addressing the current crises, we must avoid sowing seeds of new ones, as the stakes are incredibly high.

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