1. Universal basic income can be disastrous for India; here’s why

Universal basic income can be disastrous for India; here’s why

The recent announcement by Guy Standing, that India would soon endorse a universal basic income (UBI) comes as a big shocker.

New Delhi | Published: January 30, 2017 5:31 AM
The MNREGA natural experiment shows how corruption and mis-targeting of social security programmes may distort the labour markets, and reduce the employment assurance programs to providing a free basic money for a large section of rural populace. (Reuters) The MNREGA natural experiment shows how corruption and mis-targeting of social security programmes may distort the labour markets, and reduce the employment assurance programs to providing a free basic money for a large section of rural populace. (Reuters)

The recent announcement by Guy Standing, that India would soon endorse a universal basic income (UBI) comes as a big shocker. The Independent, further reports that Standing who has worked on several UBI pilot projects in India is very confident of its success, especially since the Scandinavian nation, Finland has already started the experiment with 2,000 unemployed people, each receiving 560 euros (or $480) each month for two years with little or no pre-conditions. The Finnish government believes that this step would improve the quality of life, reduce employment, and, in fact, create more jobs. However, UBI as a concept has been barely researched, and such drastic step, with little proof of concept, may likely prove disastrous in emerging markets such as India. If the pilot in Finland is designed as a natural experiment to study the effects (both positive and negative) of UBI then its most welcome, at least to enlighten us irrespective of the merits of UBI. However, the champions of UBI claim that basic income can help to increase employment by increasing social security for the unemployed who enjoy unemployment benefits, which they may lose when they get employed. The UK solved similar problem through the use of tax credits.

Finland is nation with 5.5 million people, and unemployment as of November 2016 was 8.1%, which amount to only 213,000 unemployed people. In India, however, the ground reality is different. India is a nation of 1.33 billion people. According to the fifth annual employment-unemployment survey, the unemployment rate of around 5%, although it was higher in females, than males. Unemployment also varied across states and in some states such as Tripura, and Sikkim it was as high as 19.7% and 18.1% respectively, and even in the most literate state Kerela, it was 12.5%. However, most disturbingly, the survey notes that almost 77% of all household in India reported that they had no regular waged or salaried person. India has around 250 million households, and according to SECC, 73% of these household are rural. More than 50% of rural household derive incomes from casual labour, while 56% do not own any land. Almost 75% of all rural households earn less than R5,000 per month, and only 8.3% rural households have income of more than R10,000 per month. Given the difference in the ground realities of the two nations, can we assume without compelling evidence from the ground that UBI would work for reducing unemployment for India? In Finland too, the state is experimenting with UBI for two years. In India, let us wait to see that the government report on UBI has to say when it is released this month.

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However, the arguments in favour of UBI that it can promote higher employment by creating additional social security for the unemployed while they search for jobs, rest on the fact that there exists a social security for the unemployed. In India, we do not have that kind of unemployment benefits and social security. So, the argument that unemployment benefits reduce the incentives for unemployed to look for jobs does not hold much water in India, unlike in Finland. Let us take the example of MNREGA. If newspaper reports are to be believed, then the extant corruption in MNERGA has resulted in reduction of available farm labour. The reasons were as following: those rural unemployed people who applied for MNREGA jobs and got paid (even a fraction of actual MNREGA rates) included many people who did not work at all (or worked for fictitious MNREGA projects, and fictitious jobs), and they happily sat at home since they got ‘free money for no work’. If corruption reduced MNREGA to ‘free money for no work’, then why would a farm labour work on a farm for 10-12 hours for paltry R50-100 per day, when she can get almost the same or more by not working at all. The same argument would apply for UBI, unless their skills leads them to get a job that earns them much more than UBI.

Noted economists, Jagdish Bhagwati and Arvind Panagriya have noted that in eight years of MNREGA implementation costing R266,000 crore, R248 was spent to deliver net of R50 per person per day. Similarly, another study by Accountability Initiative of CPR shows that in 2010-11, in UP which has 20% of India’s BPL population, only 13% of all MNREGA employment, while TN and AP together accounting for 8% of India’s rural BPL, generated 23%. This is a clear evidence that most government social security and employment generation programs fail due to mis-targeting.

The MNREGA natural experiment shows how corruption and mis-targeting of social security programmes may distort the labour markets, and reduce the employment assurance programs to providing a free basic money for a large section of rural populace. Keeping politics apart, do we still need UBI?

The author, Ramendra Singh is a marketing faculty at IIM Calcutta. Views are personal

  1. A
    AG
    Jan 30, 2017 at 3:45 am
    Subsidy lobby knows that introduction of UBI means bye bye to Subsidy and the entire system. So they are worried and sponsoring such articles through air-condition room journalism....
    Reply
    1. R
      Ronald Rajnesh
      Jan 30, 2017 at 5:02 am
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      1. K
        Kambala is
        Feb 2, 2017 at 11:38 am
        No free UBI, make people work in factory like embly lines, m producing basic necessities, like textiles, toys, handicrafts, mobile phones, electronics, solar panel embly thus providing Atal manufacturing employment guarantee ie AMEGA
        Reply
        1. S
          sk
          Jan 30, 2017 at 2:24 am
          The writer has no clue how MNREGA works and what is its ground condition. First of all MNREGA is being implemented half-hearted. Considering the size of India and number of villages and number of poor people, this scheme is running only in a very small number of places. At many places where it is supposed to run, it is being implemented only partially or not at all, which means people who opt for it do not get any job under this scheme.One lie that is perpetrated often is that laborers get paid handsomely in it so they do not want to work and this has resulted in shortage of laborers. The fact is something different. MNREGA laborers are paid only 150 rupees per day. Market rate for laborers even in a Bihar village is now 300-400 per day. Why anyone who can find work for 300 rupees will work for 150 rupees. Second, under MNREGA, a person is given jobs only for 100 days not 365 days. Even if a person gets 100 days of work, which never happens in it anywhere in India, then that person will earn maximum 15000 in three months. No one is going to sit and enjoy at home happy to earn 15000 in 365 days. Of course, there are corruption and mismanagement in this scheme but overall it has worked to the extent it has been implemented. The writer should worry more about 5 trillion of NPAs by Indian corporate houses that will never be paid back to the Indian banks.
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