1. Jan Dhan, Aadhar, mobile paving way for rolling out universal basic income in 2017; here’s how

Jan Dhan, Aadhar, mobile paving way for rolling out universal basic income in 2017; here’s how

Without conditionality, it would give people more control over their lives

By: | New Delhi | Updated: January 12, 2017 7:52 AM
The biggest challenge is to find an equitable way to implement it. The biggest challenge is to find an equitable way to implement it.

The government is contemplating the introduction of a basic income. Nobody outside the government knows whether it will move in that direction, and newspaper stories citing me as saying it will happen have no foundation in fact. However, as an economist and advocate for over 30 years, I am delighted that such a move is being contemplated, and that there will be a special chapter on it in the forthcoming Economic Report to be tabled at the time of the Budget.

It is especially exciting since, coordinated by SEWA and largely funded by UNICEF, we have conducted three pilots in India that have shown it could be transformative. A roll-out of basic income would boost sustainable economic growth and development. If non-merit good subsidies, estimated to account for about 8% of GDP, were phased out to free up funds, and if the wasteful food subsidies, costing a further 6% of GDP and mostly not reaching the intended beneficiaries, were also phased out, a basic income system would be eminently affordable, without slashing public social services.

The biggest challenge is to find an equitable way to implement it. The challenge is partly ideological, partly practical. We must be cool about this. For years, there has been a dialogue of the deaf, with critics saying the idea behind cash transfers is to abolish the welfare state, while some advocates, being too libertarian for the good of common sense, compromise. Public social services and institutions are vital for a good society. Some libertarians disagree. Let us put that aside for the moment, and be more pragmatic.

First, we should clarify what a basic income means, since many commentators remain confused. The proposal is that every legal resident of a community should receive a modest cash payment each month, without behavioural conditions, paid individually to each man and each woman, and each child paid via the mother. Various objections have been made, and have been answered many times.

Rather than repeat them, I wish to plead for a constructive public conversation between those who share two premises. They should believe the existing welfare system is a mess that is neither redistributive nor efficient, and believe that enabling all Indians to have more control over their lives through having more economic security is a desirable goal. It would be ideal if such a debate could be coordinated by the newly established Indian Network for Basic Income (INBI), which has already attracted numerous economists and other social scientists.

There are practical questions. If a basic income were introduced, how high should it be? How would it be phased into existence? Is it affordable? The level is partly a matter of politics. But let us assume every Indian were to receive a basic income equivalent to about 50% of subsistence, which is affordable if existing regressive subsidies were phased out. That may not be much, but we have found it would make a substantial difference to ordinary people’s lives.

The implementation was a challenge that worried us when we began pilots in Madhya Pradesh in 2011. It turned out to be relatively easy, once an intermediary NGO was involved to circumvent bureaucratic heavy-handedness. It would be easier today because of the unique identification technology.

Now, briefly consider the findings. Nearly 6,000 men, women and children in eight villages were provided with a basic income for 18 months, and what happened to them was compared with their past and with a similar number of people living in 12 other villages. The methodology is described in our book on the findings, published recently.

Four types of effect were observed. First, there were widespread improvements in welfare, in terms of sanitation, child nutrition, diets, health and healthcare and school registration, attendance and performance. On the latter, in an otherwise interesting article, Nimai Mehta claims (‘A universal basic income to step up economic reform’, Mint, October 18) that a basic income would not solve the problem of ‘human capital’. No single measure could do that. But had he examined our findings, he would have seen that the basic incomes improved schooling, particularly for the poorest and most disadvantaged. It also improved children’s ability to learn by improving their nutrition and health.

Second, there were positive equity effects. The people who tended to benefit most were women rather than men (who also gained), the disabled and scheduled caste and tribe households. This is important, since many other subsidy policies have failed to overcome the chronic inequities that exist in rural India.

The third finding should also be taken into account by economists. The basic incomes led to an increase in economic activity—more work, not less—and a rise in the amount of earned income for women, in particular. In short, it promotes the sort of economic growth the country needs, which will reduce economic inequality and the need for other poverty-alleviation policies. Again contrary to what some critics suppose, it improves low-income-earning opportunities, and is the best possible way of doing so.

This leads to the fourth type of effect. The basic income was shown to have an emancipatory value greater than the money value. [Swaminathan Aiyar, in The Economic Times, recently has claimed that a basic income would not create ‘an empowered citizenry’. The best way to create such a citizenry would be to enable them to have assured access to resources with which to make decisions, rather than just be recipients of bureaucratically-determined goods and services.]

A basic income, without conditionality, would give people more control over their lives, or what sociologists call agency, real empowerment. In most communities, money is a key scarce commodity, and economics tells us that scarcity drives up the price of any commodity. Basic income drove down the price of borrowing and the need to do so, so raising their net income.

By giving people liquidity, they had greater control over their borrowing and saving, avoiding the clutches of moneylenders charging absurdly high interest rates and enabling them to respond to shocks more rationally and effectively. Some recipients and their families ended bonded labour (naukar) relationships; some women escaped restrictive cultural restrictions.

Considering all four effects—welfare, equity, economic growth and emancipation—makes a basic income potentially transformative, in a way that selective, targeted subsidies could never be. What is unique in 2017 is that Jan Dhan, Aadhaar and mobile money have made basic income technically and administratively feasible, able to slash bureaucratic corruption and improve the lives of hundreds of millions of Indians. It will take courage, but could truly be transformative.

The author is a professorial research associate of the School of Oriental and African Studies, University of London, and co-president of BIEN (Basic Income Earth Network)

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  1. A
    Jan 12, 2017 at 3:55 am
    This will be awesome. And government will be able to save a lot towards "inefficient/useless bureaucratic cost" and Citizens cannot be arm-twisted by Corporates/Industrialists based on their economic insecurity. Great NAMO.
    1. V
      Vatsal Chaturvedi
      Jan 17, 2017 at 2:56 am
      I think it will be a very good step to be taken towards creating a more equitable society. Having control over what they get does makes sense.
      1. N
        Niteesh Sood
        Jan 27, 2017 at 5:07 am
        I am very skeptical about Universal Basic Income and would like to look at the study you are quoting. Could you provide a link?
        1. S
          Jan 26, 2017 at 4:31 pm
          A great read. Focused on the plus points of the scheme. But one has to admit that there's going to be a few major hurdles to this.1) A basic income will reach each and every member of a given community, even the children. For a family, it would incentivize having more children for greater financial benefits, which could prompt an even bigger problem of over-potion.2) The amount of money that can be given to each person(on a national scale) will be a huge amount by any means and a huge financial risk for the government, considering it's debt for just the FY16 is 5.22 lakh crore and the interest payments for debts taken in the past alone is 4.92 lakh crore. Even if other welfare funds and food subsidies are replaced, it will not compensate for the expenses under basic income strategy. India's total internal debt is close to 43 trillion rupees(March 2015), almost 40% of GDP. This money is solely drawn from Public Accounts, the money of the people themselves. With such financial burden, the current demonetization crisis and the uncertainty of the impact of a universal GST tax system to be launched in the next few months, it's too big an economic risk to tickle one's fancy. 3) Timing is very important. Most of these pilot projects have been conducted at different times for different durations over different communities of a limited number of people. The ramifications of this scheme being emplo on a national basis are many, hence much more detailed analysis and research needs to be done before arriving at any conclusion.4) Unlike the Universal Basic Income plan, this Basic Income Scheme aims to target a certain percentage of the country's most economically unstable sections. However, if other subsidies and welfare schemes were to be repealed to put this scheme into action, then a significant portion of people who were receiving benefits may not. There are still large areas which are highly inaccessible and digital penetration or banking penetration in such areas is below par. Such places rely heavily on subsidies and PDS outlets. It will be a mammoth task to decide where to draw the line, who receives the benefits and who does not. And it is a question that must be addressed because a Government's ets are limited, more so, with growing debt and global economic slowdown cascading from changing political regimes in US, the Brexit among others.

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