Is India ready for a universal basic income scheme?

The grinding mill of poverty is something that weighs India down even after 69 years of independence. Despite experimenting with the mixed economic model, encouraging private enterprise with some governmental control, and despite two and a half decades of economic liberalisation, roughly 33 per cent of Indians are below poverty line (BPL), according to the 2014 report by the Rangarajan committee.

A host of welfare schemes, including 100 days of guaranteed employment under the MGNREGA scheme, as well as targeted subsidies in child nutrition and maternity benefits to women under the National Food Security Act - both legislated and executed by the previous UPA government – exist already. But the complaint seems to be that they are weighed down by red tape and a public distribution system (PDS) that’s full of loopholes, leaking from the bottom of the barrel, and that is not reaching its intended recipients of welfare subsidies.

Battling these dilemmas, economists and academics across the world seem to be coalescing around the idea of a “universal basic income” (UBI), a notion floated by a host of renowned experts, including British economist Guy Standing and India’s Pranab Bardhan. Chief economic adviser to Prime Minister Narendra Modi, Arvind Subramanian, is also a big proponent of the UBI, as is economic analyst Surjit Bhalla, both of whom have also strongly praised Modi’s demonetisation drive.

However, UBI also has staunch critics in the French economist Thomas Piketty, who opposes the very idea of it, while others like Reetika Khera, Jean Dreze, Jayati Ghosh et al have deep reservations about its implementation in lieu of the existing welfare architecture.

What is Universal Basic Income?

Currently being experimented with in just Finland, and having been recently rejected in a vote in Switzerland, the idea of a universal basic income is a proposed solution to deal with job losses and employment attrition in “post-industrial societies” that are witnessing massive automation and use of robotics in the manufacturing as well as service sectors.

The idea is to provide from government treasury a fixed/basic monthly income to each and every citizen, so that they have some safety net in periods of financial uncertainty and avoid the poverty trap. The notion of “universality” is brought in to reduce bureaucratic laxity and prevent leakage/corruption, which occurs when targeted groups depend on the executive for the benefits.

The arguments in favour of the UBI include a minimum deposit at regular intervals in the bank accounts of each and every citizen, thereby eliminating the cumbersome process of selecting beneficiaries. Even those critical of welfare state and don’t want the government to interfere in market forces, see this as having less effect on public regulation as it is open to all.

The “cash stash”, however, helps those who are by birth or by life circumstances have fallen into hard times, to recover from the permanent or semi-permanent penury. It helps them prioritise life goals and have a choice in selecting employment opportunities that they are more comfortable with or find more rewarding.

The arguments against UBI, of course, include the notion of colossal wastage of resources, particularly because many who have absolutely no need of the subsistence income, particularly the rich and the middle classes, end up receiving a substantial amount of the money. While in small countries like Finland, where there is a relative homogeneity among the demography – middle, salaried classes grappling with post-industrialisation in an already prosperous society, this is feasible, what happens when the demography is as varied and uneven as in India?

What’s the UBI amount?

UBI can widely vary depending on the country where it is being proposed. For example, in Finland, the UBI has been fixed at 2,500 euros per month, or roughly Rs 1.7 lakh per month. By stark contrast, in India it may range from a paltry Rs 300 – Rs 1,000 per month, based on the calculation of Rs 32 per day poverty line, or an annual receipt of Rs 3,500 to Rs 10,000, as per different calculations and estimates.

UBI in the Indian context

India has already done two pilot projects in Madhya Pradesh, led by British labour economist Guy Standing and Indian development economist Renana Jhabvala, the national coordinator of the Self Employed Women’s Association (SEWA), to test the UBI and the results have been positive.

In the pilot projects, everyone in a village was given a monthly payment of Rs 200 per adult and Rs 100 per child, which was later increased to Rs 300 per adult and Rs 150 per child. It was observed that instead of discouraging the recipients from working harder and using the money to cover expenditure, the cash benefit pushed many to take better job decisions, or make investments in procuring seeds, or equipment, and move towards greater self-sustenance instead of subsisting on wage labour.

Thus, the argument that beneficiaries of unconditional cash transfer necessarily waste the “dole” and reduce work hours, was thoroughly disproved.

The other argument against UBI in a labour-intensive, highly-populated country such as India, is the generalisation that cash benefits would push up wages and labour cost, because workers would have the choice of rejecting the terms and conditions if they don’t like it. This has also been an argument against schemes such as MGNREGA, which have been accused of pushing up agricultural costs and causing inflation in the sector, irrespective of productivity.

However, as Pranab Bardhan has argued, any welfare scheme, even providing education, is ultimately about empowerment of the downtrodden and a path towards ensuring better wage system, to the extent that the base level income would be much farther up in a developed country, as opposed to a developing or less developed country.   

“ … Any poverty eradication measure will raise the bargaining power of the poor, and hence their wages…”, Bardhan said in an interview. Hence, base wage level, or minimum fair income, going up is actually an indicator of the success of the welfare scheme, and not its failure.

Unlike Bardhan, Thomas Piketty is of the opinion that instead of a basic income, which is anyway too paltry, there should be fairer and higher wages and much better labour laws, so as to encourage jobs and a higher job satisfaction among the masses. Piketty too is critical of the chunk of the UBI going to the already well-off sections of society, and the wastage of resources that entails.

However, many development economists have shown that in the globalised world, not everyone is born into poverty, but circumstances, such as closure of mills, global recession, stock market crash, accidents and injuries, illnesses, depression and many other issues could also be pushing people beyond the poverty precipice, and a UBI scheme could help many overcome that unforeseen financial problem.

How feasible is UBI in India?

Various calculations estimate the welfare economy at about 14 per cent of the Indian GDP, of which non-merit subsidies (fuel and fertiliser subsidies, as well as water, electricity and rail fare) include about 8 per cent of the GDP. 

Some however put the non-merit subsidies at only 3.3 per cent of the GDP, and all the anti-poverty schemes at about 11 per cent. Proponents of UBI within the NDA government, and its affiliated bodies and think-tanks, are of the view that UBI can replace a gargantuan welfare system, particularly in the non-merit subsidy sector, and can help those who need the money the most.

It is really here  - in the generation and sourcing of UBI – that there is maximum and strong difference among economists and experts of various shades.

While the Pune-based think-tank Arthakranti – also the brain behind the disastrous demonetisation drive and the overnight imposition of a digital/cashless economy in a highly unprepared India – has proposed a “Banking Transaction Tax, to allow states to do away with income tax and other direct taxes, and bring in an additional Rs 22 -24 lakh crore", to finance UBI, many are uncomfortable with it.

The other idea is to substitute the existing PDS and welfare schemes like MGNREGA or Food Security Act, or mid-day meal schemes, etc, and bring in UBI in its lieu. This means that instead of the 100 days of guaranteed employment, the farmer or the labourer in rural India would have to make do with the paltry Rs 3,500 to Rs 10,000 per year, an irrationally low amount.

Technological constraints

Not just fiscal, technological constraints of a gargartuan nature stare at the face of any immediate or near-future implementation of UBI in the Indian scenario. The very fact that UBI has been pitched as a "post-industrial state" scheme is precisely because it hinges on comprehensive banking and technological connectivity, as well as digital infrastructure that ensures the money transferred, not as hard cash post-demonetisation, but as some amount in the bank accounts of beneficiaries, which are not only extensive in their coverage, but also standardised.

In India, wide disparities exist not just among villages and cities, but also bustling metropolises and financial/cultural/political hubs such as New Delhi, Mumbai, Bangalore, Kolkata, Chennai, Hyderabad, Pune, etc, and tier 2/3 cities such as Agartala, Imphal, Indore, Nagpur, Kanpur, Puri, Bhubaneshwar, Kochi, Panaji and major other state capitals. The ATM density in different Indian cities and states is one indicator of such indiscrepancy in distribution of financial resources and outlets, which is why demonetisation has had varying impact on these regions.

In addition, while the official push for Aadhaar and trying to make it mandatory for practically all purposes, in stark contravention to Supreme Court's order to the exact opposite effect, has forced many to obtain Aadhaar cards, biometric data is hardly a reliable indicator of identity, in order to determine who are the worthy and deserving beneficiaries of cash transfer. While having a UBI may eliminate the need to "identify beneficiaries" altogether, reports of duplication of Aadhaar cards, or issuance of bogus Aadhaar cards to dead/non-existent persons means that the UBI could easily be abused, like any other PDS scheme.   

While smartphone penetration and increased mobile banking as well as promotion of digital literacy may somewhat offset the problems of setting up bank branches everywhere, the fact remains that online transactions and the hidden cost may prove to be much more costly for the rural individual beneficiary of the proposed UBI.  

Problems with replacing existing PDS with UBI

Or, that the child getting mid-day meals in school, conditional upon attending school, would now be dependent on the parent who would be getting the UBI, and his/her nutrition would suffer. The gender bias in nutrition would also impact the food given to the girl child, as well as the women in the household.

In addition, UBI requires that every citizen of India has a bank account, as the money would be transferred to their accounts, in an automated system once implemented. Even though PM Modi’s Jan Dhan Yojana, which created over 250 million zero-balance accounts for the hitherto left out from the banking system, most are lying vacant, or with just one rupee in them, without any necessary help to the account holders. Moreover, about 45 per ecnt of Indians still don't have a bank account, or acutely distrust the banking system. 

Moreover, Indian family structures still hinge on feudal mores, hence the male adult is likely to have a bank account or access it, more than a female adult in the same household. Therefore, the UBI sent to the female adult’s bank account may be completely cut off from the woman’s ability to use the money she’s legally entitled to. Unconditional and direct cash transfers do not discriminate between varying situations which might make cash benefits less helpful and benefits in kind, such as food, maternity benefits, schooling, healthcare, guaranteed employments, etc.

Another major issue with UBI replacing existing PDS is that in case of situations like drought, famine, crop loss, extreme inflation, natural disasters, wars and other casualties, in-kind benefits are far more effective than meagre cash transfers. Guaranteed jobs and nutrition, as well as schooling, are better indicators of a family beating the poverty trap with government help, rather than being handed over a little bit of money in lieu of the former.

UBI complementing PDS

Though it may be difficult to pull off in the beginning, but the true benefits of the UBI scheme can only show if the existing PDS is fixed and the leakages plugged, and the system is bolstered.

Economists like Reetika Khera argue for a phased implementation of UBI, and say that schemes such as the NFSA already target all the individuals of an identified vulnerable group, such as pregnant women, widows, pensioners, disabled people, and help them with subsidies and some income, whether in the form of social security, pensions, maternity benefits, etc.

Khera argues that such targeted benefits should be seen as a variant of the UBI, which can be implemented in phases, prioritising the most vulnerable over those who need less help to overcome life situations or poverty cycles.

Moral economy and Modi

For someone whose tendency to take centralised decisions beats the socialist era of late Indira Gandhi, PM Modi can be expected to sell UBI – if it’s brought in – as a moral obligation of the rich, patriotic Indians towards their more unfortunate brethren.

Just like he did in the case of LPG subsidies, asking those who can afford to, to give up the subsidies to help those more deserving, PM Modi can easily ask middle and upper class Indians to donate their UBI to certain government funds, or start initiatives to help run start-ups and such entrepreneurial dreams.

However, the UBI, if brought in by the Modi government, is also likely to push up indirect taxes and cesses as well as see stupendous increase in rail fares, water and electricity bills, as well as petrol and diesel prices, causing a cascading effect on the economy, and prompting significant inflation and price rise. Can India cope with the economic urgency of such a moral momentum?

The jury is still out on that, and at least for now, UBI is still a pipe dream.

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