Why India is right to consider a universal basic income
The concept of a universal basic income is, somewhat surprisingly, receiving renewed attention from the Indian government. In recent interviews, the government’s Chief Economic Advisor, Dr. Arvind Subramanian, has called it an idea that ‘has a lot of promise.’ According to Dr. Subramanian, the next Economic Survey — an important document that outlines the government of India’s policy direction, and precedes the budget each year — will include a full chapter on the pros and cons of a universal basic income.
In addition to this, Ideas for India has recently published a series of six blogs about the application of a basic income in India by well-known Indian economists Pranab Bardhan, Abhijit Banerjee, Maitreesh Ghatak, Debraj Ray, Kalle Moene and T.N. Srinivasan. And there are many good reasons why India should seriously consider a universal basic income.
A universal and unconditional cash transfer to all Indians is possibly the single policy intervention that would contribute most to the global goal of eradicating extreme poverty. With almost half of the world’s extreme poor living in India, the country’s decisions regarding social policy are extremely important for the achievement of the SDGs.
The positive effects that a universal and unconditional cash transfer can have on poverty has already been demonstrated in India by a UNICEF-funded pilot project in Madhya Pradesh.
Crucially the evidence shows that cash transfers do not create dependency but, on the contrary, increase the productivity of beneficiaries. A basic income would provide an unprecedented boost to productivity and economic growth in rural India, by empowering poor farmers to invest in their land. Studies of the effects of cash transfers in other countries have shown large local multiplier effects, and the increase in demand generated by a basic income would be great for entrepreneurs. A basic income should therefore not be seen as an expenditure, but as an investment in a healthy economy and society, which is just as, if not more, important as the investment in physical infrastructure that the government has so far prioritised.
You might think that a universal basic income would be a more natural next step for high income countries with an already well developed welfare state and more state resources to pour into transfers to all citizens. And indeed the basic income idea is currently being tested in several high income countries, including the Netherlands, Finland and Canada.
However, there are several reasons why a universal basic income might actually be more appropriate and feasible in a middle income country like India. First of all, as economist Pranab Bardhan has shown, a universal basic income is much more affordable in India than in most high income countries, because the poverty threshold is much lower and inequality higher. Simply put, because there are so many people living on very low incomes, the benefit level can be very low and still cause a significant increase in people’s income. A basic income turns out to be fiscally much more readily achievable in a country like India than in most high income countries.
One of the arguments for a basic income in high income countries is that the labour market is shifting from full time employment to more precarious freelance and part time jobs, and that many jobs will eventually disappear completely because of automation. This means that the contributory social insurance systems that currently forms the backbone of social security systems in many high income countries will break down. A tax-financed social security scheme that is not linked to labour market participation, such as a universal basic income, will therefore be needed.
While the reality of high unemployment and underemployment is still a future scenario for high income countries, it has always been the reality for India and many other low- and middle-income countries. In India only about half of men and only one in five of women are in the labour force. This means that hundreds of millions of people live from hand to mouth, combining dangerous and underpaid work as day labourers with subsistence farming. Those that can afford it migrate to other parts of India or to the Middle East.
This situation has shown no signs of improving. On the contrary, the informal economy seems to be growing. Between 2005 and 2010, despite economic growth, the formal sector in India only created jobs for on average of 2.7 million people a year. Meanwhile 15 million Indians enter the labour force every year. Add to this the World Bank estimation that as much as 69 percent of jobs in India could be threatened by automation.
A social security system based on contributory social insurance — which relies on most people having a more or less permanent connection to the labour market — will therefore never work for the majority of India’s population. An expansion of tax-financed social security is the only way to avoid persistent poverty and reducing India’s extremely high inequality, and the violence, crime and social instability that goes with it.
In many ways a UBI is a perfect social policy solution for India. It presents a way of achieving a high degree of distribution, with a minimum of state intervention and administration. As Martin Ravallion has argued, a basic income could achieve the same goals as MGNREGA, the large cash for work programme, but at a much lower administrative cost. It could be rolled out gradually to the most deprived areas of the country first, since there are big differences between poverty levels in the different states and even between different areas within the same states.
At the moment, India’s social safety net is more holes than net, with most programmes using the Below Poverty Line targeting mechanism — a proxy means test which is notorious for excluding most of those in need of support. A universal basic income would ensure coverage of all those in need of support and it would provide this support, not as a form of charity to the lucky few, but as a right of all Indian citizens to a fair share of the country’s prosperity.
Such an initiative would elevate India’s status from one of the countries in the world that provides the lowest level of support to its citizens, to being at the forefront of innovative and inclusive social security. It would provide an example for the world, developed as well as developing countries, not least its neighbours Bangladesh, Pakistan and Sri Lanka.
Rasmus is a Social Policy Specialist with Development Pathways. He has a background in political science and more than seven years of experience working in international development in Africa and Asia, with a focus on governance and social protection. He is currently doing research on social protection for people with disabilities and social accountability in social protection.
Originally published at Development Pathways.
