Universal basic income looks good as substitute for inequitable public spending: IMF

Washington: Citing an Indian case study, the IMF has said that universal basic income "looks good" when it substitutes inequitable and inefficient public spending.

With several countries discussing the option of universal basic income (UBI) for their unemployed population, the International Monetary Fund carried out a simulation exercise of various subsidy schemes with UBI.

A UBI is equal cash transfer to all individuals in a country.

The IMF used the schemes that were in place in India at around 2011 and the schemes that it considered were aimed at ensuring access to necessities by the Indian population and also schemes of fuel subsidies.

"And what we show in that example which is very telling is that given our estimate of the impact of the 2011 programme UBI would actually benefit the poor more for the same budgetary cost," said Vitor Gaspar, Director of the Fiscal Affairs Department at IMF.

In countries where targeted schemes benefit relatively more, Gasper said in such cases UBI looks like a very attractive alternative.

"The point that I tried to make in general when I said that UPI looks good when it substitutes for inequitable and inefficient public spending," the IMF official said.

However, now it turns out that the situation in India has changed a lot. Energy subsidies have been deeply reformed during the period since 2011, he said.

"India is engaging in very ambitious programmes in terms of fiscal policy and public finance. More generally, India is engaged in a fascinating process of economic development and transformation. In that context India may want to ponder a UPI or it may opt in a completely different direction," he said.

That depends on the politicians and policymakers' assessment of the facts of the situation, depends on social and political preferences in India, Gasper said.

According to Gasper, the idea of UBI is not new and it has been widely debated by economists in the past. "It has received growing attention in recent years, partly in response to the perception of the possible effects of artificial intelligence and automation on jobs in the future," he said.

Because of its universality, a UBI has the potential of having a significant impact on inequality and poverty. But since it is universal, it can be fiscally costly, he cautioned.

Therefore, the discussion of a UBI cannot be disentangled from a discussion of its financing.

A UBI could be an option as a replacement for inefficient and inequitable social spending.

On the other hand, a UBI would not be advisable in the context of low tax capacity or if it were to compete for resources with high priority spending on investment, health and education, for example, Gasper said.