The ongoing global pandemic and the accompanying socioeconomic crisis have resulted in rejuvenated support for a widely debated policy proposal: Universal Basic Income. A closer inspection of this policy’s history and practicality reveal that a national cash transfer policy would be successful in India.
The ongoing global pandemic and resulting socioeconomic circumstances have prompted widespread discussion on Universal Basic Income (UBI) in India over the last few months. Even though the question of UBI’s practicality has been a matter of national importance for over a decade, the discussion has recently attained unprecedented urgency. An analysis of UBI’s history in India and the arguments within the debate on cash transfer programs, would provide further evidence in support of the viability and current necessity for the introduction of a basic income policy in the country. Specifically, UBI could impede the effects of a pandemic that has already resulted in a pervasive unemployment crisis and aggravated levels of poverty among the nation’s poorest families.
The inception of a serious national conversation centered around the viability of Universal Basic Income can be perhaps traced back to the publishing of ‘The Case for Direct Cash Transfers to the Poor’, a paper from 2008 authored by the former chief economic advisor to the Government of India, Arvind Subramanian, along with Partha Mukhopadyay and Devesh Kapur. Their argument suggested the replacement of separate and sector-specific subsidy plans with a direct cash transfer policy.
The sector-specific subsidy plan is an ongoing policy in which the national government provides cheaper access to specific commodities and services for the economically underprivileged by giving subsidies to certain sectors (e.g., the financial compensation annually assigned to fertilizer companies, allows the sale of the particular commodity at rates ranging from 70% to 30% of market price). Alternatively, a direct cash transfer policy would instead provide supplemental income to citizens, which they could spend on any commodity or service A direct cash transfer policy would be superior because it would avoid the inefficient, apathetic and, at times, corrupt local administration, that continuously obstruct existing welfare policies.
For instance, the Public Distribution System (PDS), which facilitates the issuance of subsidies, annually loses around an estimated 39% of its kerosene stockpile to the black market. A direct cash transfer plan’s inherent lack of dependence on industry would avoid such loss of resources.
Subramanian, Mukhopadyay, and Kapur’s paper laid the groundwork for India’s debate over Universal Basic Income, and inspired a series of experiments with direct cash transfers.
Early Experiments
Two notable basic income experiments were conducted in New Delhi and rural Madhya Pradesh by the Self Employed Women’s Association (SEWA). The Delhi experiment assigned a monthly income of 1,000 rupees to 100 BPL families, for a year. In Madhya Pradesh, 6,000 individuals were provided with monthly allowances ranging from 150 to 300 rupees, for a period of three years. Both experiments yielded positive results. The Madhya Pradesh trial in particular, revealed that individuals receiving supplemental income were more likely to see improvements in regards to housing, debt clearance, asset management, education and health.
The national government began experimenting with cash transfers in 2013 when it changed the distribution of scholarships and old age pensions. Prior to the reform, recipients received these payments as hard cash, through governmental intermediaries on set dates, usually at overcrowded establishments. After 2013, these programs transferred cash directly to students and seniors.
The Supreme Court thwarted an early attempt at replacing the universal subsidy for LPG (liquefied petroleum gas) with cash transfers, claiming the plan lacked clarity regarding public access to the welfare scheme. Prime Minister Narendra Modi’s government recently revived the direct transfer LPG scheme, and also added provisions for individuals lacking identity cards. The scheme, combined with increased access to bank accounts, resulted in prolific success. Over a five year period, the Indian government saved an estimated 59,000 crores by foregoing the old system of rewarding subsidies to oil companies.
In 2015, the government launched an experiment replacing food subsidies with cash transfers in Chandigarh, Puducherry and Dadra and Haveli. Despite logistical and technical and infrastructural difficulties, the results were similar to SEWA’s Madhya Pradesh experiment, and the majority of the beneficiaries expressed a preference for cash transfers over in-kind subsidies.
These early experiments provided empirical data to the conversation on Universal Basic Income. The government has shown enthusiasm for the policy, largely attributed to its economic utility. In the 2016-17 Economic Survey, the Ministry of Finance stated that UBI warranted serious discussion. The government proposed a truncated UBI plan of allotting 7,260 rupees per annum to 75% of the population.
The National Debate of UBI
By the late 2010s, many notable economists such as Pranab Bardhan, Vijay Joshi, Guy Standing, and Vikas Singh began arguing for the supposed viability of basic income. They stated that India’s lower poverty threshold would make direct cash transfers a successful policy. The umbrella of UBI would also eliminate several existing schemes that contribute to a fiscal deficit. They also highlighted the policy’s efficiency, as observed in numerous national and international experiments. In addition, Rahul Gandhi, in his 2019 general election manifesto, promised a basic payment of 6,000 rupees per month to all families among the poorest 20% in the nation.
However, critics, including Nobel laureate Amartya Sen, have expressed skepticism, stating that it would lead to a cut in spending and divert government resources away from public services. Others consider UBI to be unfeasible and question its practical applicability. The opposition seems to be largely based on the perceived dangers and drawbacks of implementation, as opposed to conceptual objections to direct cash transfers or even support of the existing system.
Conditional Implementation of the Concept – Kisan Samman Nidhi (PM-Kisan Yojana)
In early 2019, the government launched the Prime Minister Kisan Samman Nidhi (PM-Kisan Yojana) program, which provides farmers owning less than two hectares of land with a yearly income of 6,000 rupees. Despite criticisms, an estimated 85 million farmers have benefited from the scheme. The programme has been preceded by comparable state-level initiatives in Telengana, Madhya Pradesh and Orissa, respectively.
Despite uncertainty regarding the long-term sustainability and success of the scheme, its implementation is a testament to the accelerated acceptance of the concept of Universal Basic Income in India.
The Current Situation
The less than ideal administrative history of the previously established welfare systems, combined with their wasteful policy frameworks, have resulted in support for UBI in the nation from both lawmakers and economists, albeit accompanied with legitimate concerns about practicality
The Coronavirus pandemic has now prompted a different and decidedly urgent discussion on the matter. The projected year-end global growth of -4.9% is to be the worst since the 1920s, while India itself is currently projected to only grow 1.9% in 2020. The overwhelming majority of the nation’s workforce is in the informal sector and without proper financial security, which has resulted in them taking a disproportionate hit during the continued national lockdown. This has led to a major upswell in calls for the government to set up a system that would provide regular payment to the poor, till the economy stabilizes.
The Solution: A Small, Temporary UBI Program for the Pandemic
The fact of the matter is that, despite UBI’s theoretical viability, the current state of the Indian economy severely hampers the fiscal capacity of a national cash transfer plan. Therefore, any basic income policy being introduced would most likely have to be a temporary scheme, smaller in scale, and explicitly designed to provide immediate relief to the most economically under-privileged households in the country, including people who have lost their jobs as a result of the pandemic. Apart from that, individuals stricken with multidimensional and categorical poverty, such as the homeless, the destitute and former bonded laborers should automatically qualify for the program. The use of Aadhaar Cards for registrations would minimize the possibility of duplications and would allow for constant and systematic updates to the registry of eligible candidates.
Payments from the PM-Kisan Yojana can be partly incorporated within the proposed cash transfer, for parties eligible for both schemes. It’s a safe assumption that the required amount would exceed the Central Government’s current fiscal capability. Thus, the cost for the maintenance of the program would have to be shared by the states. Considering the fact that states like Telangana and Odisha have already successfully maintained local cash transfer programs in conjunction with the PM-Kisan Yojana, there is clear precedent for the success of state-centre partnerships on supplemental income policies.
Therefore, even though the conversation around basic income and its implementation has a relatively complex past, the current time does genuinely call for special consideration, a sentiment echoed by many in a nation undergoing extraordinarily trying times.
