COVID-19: India needs an Emergency Basic Income

ECONOMY/ GOVERNANCE

Topic: General Studies 2:

• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

COVID-19: India needs an Emergency Basic Income

India announced 21-day lockdown to prevent the spread of COVID-19 and any exit from the lockdown is likely to be partial and provisional.

IMF economist Gita Gopinath has argued for a preservation of the economic system while the Great Lockdown lasts.

Do You Know?

• Singapore and Japan, which contained the disease spread initially, have re-introduced harsh lockdown measures to deal with a second wave of infections.
• The US announced a $2.2 trillion stimulus on a $20 trillion GDP base
• Malaysia has mobilised close to 18% of its GDP

Impact of lockdown

• Lockdown poses a unique challenge of keeping productive capacity intact. Nobel Prize-winning economist Paul Krugman termed this the coronacoma.
• Coronacoma is the economic equivalent of a medically induced coma, in which some brain functions are deliberately shut down to give the patient time to heal

What should be the economic response to the crisis? 

The response should be two-fold

• One, an immediate disaster relief component to ensure survival of both firms and workers who have been rendered without work.
• Two, a stimulus component that aims to repair and restart production lines during the exit phase of the lockdown.

Challenges

• Weak response (Economically): The relief measures by Union & state governments appear to be grossly inadequate to meet the challenges
• Lack of resources: Emerging markets, such as India, don’t have the luxury of offering generous relief measures like developed countries

Examples of other emerging economies

• Thailand, whose per capita income (PPP) is a little more than two times that of India, has announced a package that is 10 times bigger (as a share of GDP) than India.
• Malaysia, whose per capita income (PPP) is four times that of India, has announced a package that is 16 times bigger (as a share of GDP) than India.

Alternative Suggested – EBI (Emergency Basic Income)

• EBI will be a generous, but provisional income transfer programme, which is unconditional and universal.
• EBI will be subjected to a rollback when normalcy returns
• It will be a programme with a fixed and transparent sunset clause (linked to new infections falling beyond a certain level, or economic growth rising above a certain threshold)
• Funding could be through special purpose vehicle as long as the Great Lockdown lasts
• Challenge with EBI: Implementation issues because everyone doesn’t have a functional bank account or access to mobile or internet (for e-transfers).

Way Forward

• EBI must also include an in-kind transfer component. 
• The ratio of cash to in-kind transfers should be left for states to suit their unique needs
• Centre’s role should be to enable funding for this programme so that states can focus on its implementation.

Connecting the dots:

• Poverty lines –various methods to determine it
• JAM trinity- utility and challenges