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Current affairs, Economics

Cash handouts a precursor universal basic income in India?

Is universal basic income around the corner in India.

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Is the beginning of direct benefit transfer of funds to India’s most marginalised citizens which the country’s Budget for the financial year starting 1 April unveiled in terms of a massive handout for small farmers the holy grail in the fight against debilitating and widespread poverty? Is it, as the Wall Street Journal asked in a recent article, a possible prelude to implementing a universal basic income in India?

The emerging political consensus in India seems to indicate that the answer to both questions is in the affirmative.

The government of Prime Minister Narendra Modi, in its last Budget before it goes up for re-election in general elections scheduled for April-May this year, promised pay-outs to poor farmers – well over 50 per cent of Indians are still dependent on agriculture for a living — through the direct benefit transfer (DBT) mode.

The DBT model has been advocated for long by economists and policymakers across the political divide as the best way of helping the poor as it puts money into individual bank accounts and virtually eliminates the possibility of leakages whether due to systemic inefficiencies or corruption.

Though the individual pay-out announced by the government for small and marginal farmers is modest – each farmer gets a little over 250 dollars per annum in his/her account paid out in three tranches of 80-odd dollars every four months – the total outlay for the scheme given the sheer number of citizens it seeks to help, around 120 million farming families, would cost a whopping 10.5 billion dollars a year.

The Indian Prime Minister was quick to point out in an election rally just a day after the Budget was presented in Parliament that the scheme is valid in perpetuity with no end-date, which in effect already makes it a quasi-basic universal income scheme for a large section of the distressed farmer families of rural India who own less than five acres of agricultural land.

Senior Minister (without portfolio) Arun Jaitley, who has been in-charge of the Finance Ministry from the very beginning of the Modi Administration and is currently recuperating from an illness in the US, followed that up in an interview from hospital on 3 February in which he stressed that the quantum of the pay-out could be increased with the passage of time and as the government’s resources grow. He also pointed out that various state or provincial governments could top-up the central government’s pay-out with their own localised income support schemes.

These moves are clearly aimed at taking on the poll promise made by Rahul Gandhi, president of the Congress Party and Modi’s main challenger in the forthcoming polls, that if voted to power his party would introduce a Minimum Income Guarantee for every poor person in the country which he announced a few days before the Budget clearly taking the ruling party by surprise. Details of his proposal have not been made public though party spokespersons have been insisting that the blueprint is ready and will be announced at an appropriate time. Gandhi himself was dismissive of the “pittance” he accused the Modi Administration of allocating for small farmers as income support and said his party would do much better to ensure universalisation of the income guarantee for India’s poor both rural or urban.

There is unanimity in India that a bidding war for support at the hustings has begun. In the process, India missed its fiscal deficit target which was set at 3.3% of GDP for the year ending in March but will end up at 3.4% of GDP and there is uncertainty about next year’s. There is also some concern among economists about how any government – regardless of political persuasion — will find the money to fund an ambitious Universal Basic Income scheme.

In theory, an annual pay-out of 106 dollars to 75% of India’s poor population could be implemented if it replaces all existing programs and subsidies which would partially offset the cost of implementing a Basic Universal Income scheme that is estimated will be about 5% of GDP. While a little over 100 dollars a year may not seem much to most, for many Indians living on less than a dollar a day it could mean life above the poverty line. While details of how such a program would be implemented haven’t been released by either of the two national political parties, they appear to be versions of universal basic income plans which are being debated around the world.

An Indian government paper in 2017 had first sparked serious discussion about the issue by suggesting the country could eventually benefit from such a program. “Universal Basic Income may simply be the fastest way of reducing poverty. UBI is also, paradoxically, more feasible in a country like India where it can be pegged at relatively low levels of income but still yield immense welfare gains,” the report said.

It seems increasingly a question of when, not if.

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