In its ‘Fiscal Monitor – Tackling Inequality’, the IMF has discussed UBI, “a proposal that has been widely debated recently and is being tested in several countries”, devoting extensive space to its case for India.
IMF estimates India could provide a universal basic income (UBI) of Rs 2,600 a year to every person if it eliminates food and energy subsidies.
Even such a modest level of UBI will incur a fiscal cost of about 3% of GDP but would outperform the public food distribution and fuel subsidies on three counts.
It will address the under coverage of the near 20% lower income groups in the PDS, address the issue of higher income groups cornering bigger subsidies and increase generosity benefits received by the lower income groups.
In case of fuel subsidies, the IMF simulation goes beyond budget subsidy of cost-price difference to the extent prices are “below efficient levels that would internalize the negative externalities associated with fossil fuel consumption”.
The flip side of this is that eliminating the wider subsidies would require a sharper increase in prices than the case when budget subsidies are removed. The IMF cites a 2016 study that pegs the order of increase in gasoline (67%), diesel (69%), kerosene (10%), LPG (94%) and coal (455%).
What is UBI?
A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement.