Time Ripe For Discussion On UBI, Says CEA Arvind Subramanian

Speaking for the first time on demonetisation on a public platform since November 8, 2016, Chief Economic Advisor Arvind Subramanian defended the government's demonetisation move calling it as a "radical social engineering" measure to “weed out” black money. He was addressing the media after tabling of Economic Survey ahead of the budget day.

Subramanian also touched upon the concept of Universal Basic Income (UBI) for the poor in this Economic Survey for 2016-17.

Reviewing 2016,  Subramanian said "many missed out on the two positives that we managed to successfully tackle last year". "One was the volatility from both US election and the other was demonetisation. Both these factors were weathered by the economy rather successfully," Subramanian said. "The past year has had robust macroeconomic stability, reserves at all-time high, CPI inflation has come down and the FDI inflows too remained robust," the chief economic advisor said in his one-hour long presentation on the Economic Survey.

"There are 14 chapters in all and the Survey has been divided into four parts. From the July-August 2013 period, which was a 'crisis time', when the investors were fleeing to now, things have changed for the best," he said. Subramanian cited seven positives that positively impacted the Indian economy in the past two years. These include movement on the Goods and Services Tax regime, the Bankruptcy Bill, Monetary Policy, Aadhar Bill, liberal FDI, Universal Payment Interface and promoting labour intensive sectors like textiles.

The Survey brings back the age old demand of a stable tax regime and widening of the tax base, including bringing real estate under GST. However, it is also recommending reduction in tax rates which would go a ping way towards increased tax compliance.

The chief economic advisor said the Survey prescribes for a cut in individual Income Tax rates and a cut in real estate stamp duties. As per the wide expectations from tax experts and sector analysts, the Survey also bats for a time table for cutting down the corporate tax and reducing the discretion in tax administration among several other measures. Experts said these indicators laid down in the Survey can be taken as a 'preview' of what may be coming in the General Budget which will be tabled in Parliament on February 1.

Reacting to the Economic Survey, Jaijit Bhattacharya, partner, Strategy and Economics, KPMG in India said the Survey confirmed the ballooning of bad debts with banks in the current financial year. "To ring-fence the ongoing operations of the banks, the economic survey suggests creation of a "Bad debt bank" to take away the toxic debts from the regular banks, allowing them to focus on current and future banking obligations. A Public Sector Asset Rehabilitation Agency (PARA) is thus proposed which would help realign banking sector towards focusing on funding new projects," he said.

Richard Rekhy, CEO, KPMG in India said the Survey has signalled that the Indian economy is on a stable growth path, projecting a growth between 6.75 and 7.5 per cent for 2017-18. "The range comes due to uncertainties in the world, including protectionist tendencies. While demonetisation’s short-term negative impact has been acknowledged, its long-term benefits have been highlighted, particularly in terms of digitisation, tax compliance and revenues," Rekhy said. The Survey, points to a likely bold and reformative budget, which will have a strong focus on infrastructure, employment generation and easing business conditions. The issue of NPAs is most likely to be addressed coherently, along with taking stock of the PPP logjams, he further added.

Focus on Universal Basic Income (UBI)
Subramanian also touched upon the concept of Universal Basic Income (UBI) for the poor in this Economic Survey for 2016-17. The Survey has even calculated the UBI for 2016-17 at Rs 7,620 even though UBI is still at a concept stage. "We hope that the time is ripe for a discussion on UBI. We can also consider going the pilot project route but that has its own limitations," he said in his address to the media at the National Media Centre here in the capital. The Survey accepts that putting a number to UBI is not an easy calculation because it depends on a number of objectives and assumptions.

"Based on the 2011-12 distribution of poverty, it seems clear that going from a certain very low level of poverty to eliminating it will be prohibitively high. So, a target poverty level of 0.45 percent is chosen. Then the 2011-12 consumption level is computed for the person who is at that threshold. The next calculation is the income needed to take her above Rs 893 per month, which is the poverty line in 2011-12. This comes to Rs 5,400 per year," the Survey said. The survey calculates the economy-wide cost of the UBI at 4.9 per cent of GDP.

8 Interesting Facts in Survey
In the chapter 'Eight interesting facts about India', the Survey, for the first time gives interesting nuggets on India. Here is the list:

New estimates based on railway passenger traffic data reveal annual work-related migration of about 9 million people, almost double what the 2011 Census suggests.

China’s credit rating was upgraded from A+ to AA- in December 2010 while India’s has remained unchanged at BBB-. From 2009 to 2015, China’s credit-to-GDP soared from about 142 per cent to 205 per cent and its growth decelerated. The contrast with India’s indicators is striking.

Welfare spending in India suffers from misallocation - India has 7 taxpayers for every 100 voters ranking us 13th amongst 18 of our democratic G-20 peers.

India’s share of working age to non-working age population will peak later and at a lower level than that for other countries but last longer.

As of 2011, India’s openness - measured as the ratio of trade in goods and services to GDP has far overtaken China’s, a country famed for using trade as an engine of growth. India’s internal trade to GDP is also comparable to that of other large countries and very different from the caricature of a barrier-riddled economy.

Spatial dispersion in income is still rising in India in the last decade (2004-14), unlike the rest of the world and even China. That is, despite more porous borders within India than between countries internationally, the forces of “convergence” have been elusive.

Evidence from satellite data indicates that Bengaluru and Jaipur collect only between 5 per cent to 20 per cent of their potential property taxes