Universal Basic Income and the new Peter’s Principle

I have come across two eminently sensible articles on the applicability of and the relevance of ‘Universal Basic Income’ for India. One was by Prof. Pulapre Balakrishnan (ht: Praveen Chakravarty) and the other by Rajesh Kumar of MINT (Disclosure: He is the Editor of the Edits page that carries my weekly columns).

Prof. PB’s article is also crisply written. It is a good example of good writing. Here is one sample:

But the answer to the accumulating subsidy bill lies less in moving to the distribution of its cash equivalent as much as to transferring the potential saving from their elimination into public investment.

Universal Basic Income (UBI) attempts to tackle only the first part of the sentence above and that too for all Indians?! Why should it be given to people like us and to the ultra-rich? What for?! What about targeted subsidies and the use of technology to do that? Why suddenly talk of UBI for all Indians? It is madness.

His point on UBI is indisputable:

In our present state of development and given the current state of the public finances, the UBI would leave India bereft of public goods and services. Once everyone has been given a certain amount of income under the auspices of the state, it gets absolved of all responsibility for providing these goods and services which the private sector has no incentive to provide. We would now have to live content with our paltry benefits on islands without the bridges needed to take us to our neighbours.

As for financial feasibility, many write glibly that it could be paid for, by pruning subsidies elsewhere. Neat for the op.-ed. writer. It absolves his or her conscience without doing anything to address its practicality. Like many things in life, once done, government interventions are hard to roll back. They are sticky. That is the point that Rajesh Kumar of MINT makes:

The second assumption is that the non-merit subsidies can be rolled back easily. It will not be easy for the government to roll back subsidies such as food, fertilizer, fuel, electricity and water. In fact, politically, it will become even more difficult to arrive at the amount that will need to be transferred under UBI if subsidies are rolled back. In this context, it is important to recall the political backlash when the Tendulkar committee showed a poverty ratio of 21.9% for the year 2011-12. The government had to constitute another committee under C. Rangarajan which gave a higher poverty ratio. [Link]

I reiterate: talking of financing it is only secondary. That should not be construed as an acknowledgement of the intrinsic soundness of the idea. It is bad and extremely dangerous for India. I am both alarmed and amazed at the speed with which the idea has gained traction in India. I would have thought that it merited less than 60-second consideration before being rejected, in the Indian context.

Ideas also conform to the Peter’s principle of management competence that every employee, in a hierarchy, rises to his ultimate level of incompetence.

Its modified form is this: “For every problem, only bad ideas rise to the ultimate level of consideration.”


2 thoughts on “Universal Basic Income and the new Peter’s Principle

  1. “That should not be construed as an acknowledgement of the intrinsic soundness of the idea. It is bad and extremely dangerous for India.”

    Care to elaborate? It sounds like an extremely good idea, to me. At least if enabling community self organization, entrepreneurship, and however far the added customer spending goes, is the objective.

    Abolishing public services is of course not a good idea, however. But public services do not support aggregate demand. They do not support entrepreneurship from the demand side, and arguably, UBI further supports entrepreneurship from the supply side much more efficiently than targeted secondary education offers.


    1. Thank you for commenting here. Any freebie without strings attached has moral hazard written all over it. It has to be targeted. It cannot be universal. Half the country does not need it nor deserve it. For the other half that probably need it, it cannot be and should not be unconditional. What those conditions can be requires some elaboration. It could be a mix of economic (employment, education, entrepreneurship), health and sanitation (toilet, women’s health and nutrition). The second concern is feasibility. As Rajesh Kumar argued, it won’t be funded by withdrawing some existing entitlements. Once formed, they tend to stay. Third, there are opportunity costs to any resource being handed free or not. Fourth, there is the risk of finding funding for it through tax harassment. Fifth, this would completely erase the difference between the Congress and BJP. Redistribution and class warfare: nothing about aspirations and growth and an expansion of possibilities.


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