Will Universal Basic Income Replace Safety Net Payments in India?
India’s finance minister presented the 2017-2018 budget to Parliament on January 31, 2017. There had been speculation that the budget might include a proposal for a universal basic income (UBI) for all Indians. In fact, the India Economic Survey 2016-17, released by the Office of the Economic Advisor to the Prime Minister just ahead of the budget speech, devoted an entire chapter to discussing the pros and cons of UBI. Under a UBI scheme, the government would guarantee a minimum income to all citizens in place of the many safety net subsidies it now provides. Historically, Indian governments have provided citizens with subsidies related to education, fertilizers, food, fuel, health care and more, in addition to subsidising interest rates on loans. These programs face common challenges related to identifying citizens, determining whether citizens qualify, and delivering subsidies through appropriate channels. Three key issues are being debated right now.
Photo Credit: Dhrubajyoti Bhattacharjee, 2016 CGAP Photo Contest
Should UBI be universal or restricted?
Should government resources be spent on providing minimum income regardless of the economic standing of citizens? Some argue that a truly universal subsidy is a simpler, better solution than a large number of unwieldy conditional subsidies. Guy Standing, a professor of development studies at the University of London and leading proponent of UBI, posits that technology is changing the nature of work and that wages are not just stagnating, but often falling. As such, UBI can also play a part in reducing income inequality in the long term. This view is partly informed by a UBI pilot in Madhya Pradesh (a state in India) that demonstrated widespread improvements in financial inclusion, nutrition, school attendance, asset ownership and women’s empowerment, as well as a shift among poor rural people away from subsistence wage labor to farming for themselves. Opponents argue for fiscal prudence, noting that it might be difficult for the government to afford a UBI scheme and that it might be better to restrict such a scheme only to citizens who have incomes below a defined poverty line. They also question the government’s capacity to implement UBI, arguing that the government might adopt UBI without rolling back existing subsidy schemes for fear of a backlash. Some worry that the government might even abdicate its responsibility to build public infrastructure as a consequence of adopting such a scheme.
Will UBI advance financial inclusion?
The next issue concerns the feasibility of implementing a scheme targeted to individuals and how that might work out to advance financial inclusion. The prime minister’s Jan Dhan Scheme has been successful in opening 267 million bank accounts and is part of the reason why a recent survey found that 99 percent of households in both rural and urban India have at least one member with a bank account. A monthly UBI payment to individuals would mean that almost all individuals, not just households, would need a bank account to receive their payments. For this, the last-mile infrastructure to service cash withdrawals and promote individual account usage remains a limiting factor. The combination of the unique identity number with biometric verification was expected to improve the delivery of public subsidies while advancing financial inclusion, but experience in the field shows that some beneficiaries are unable to receive their entitlements due to unreliable fingerprints, poor connectivity, inadequate delivery infrastructure, system failures and false rejection of valid claims. The India Economic Survey 2016-17 concedes these challenges while suggesting that a continued focus on financial inclusion, the ubiquitous penetration of mobile phones, the presence of open and interoperable banking, and last-mile agent networks from newly licensed banks could all play a role in helping UBI achieve intended outcomes.
How much UBI is enough?
The third issue regards which parameters the government should use to set a universal basic income. What level of income is enough for a family to meet its basic needs and not slide into debt and poverty? And what would it cost the Indian government to provide that level of UBI? A recent analysis suggests it could cost between 2.4 and 12.5 percent of GDP, depending on where the minimum is set. The Economic Survey 2016-17 computes this figure at between 0.6 and 10.8 percent of GDP, with the caveat that UBI would be quasi-universal, excluding the top 25 percent of the population.
The India Economic Survey 2016-17 favors the adoption of a UBI scheme. India’s Finance Minister said, “Indian politics isn't mature enough to give up subsidies for the greater goal of a UBI.” What is clear is that the discussion will continue and India seems to be moving closer to adopting a UBI scheme.
CGAP Brief: India’s Push for Financial Inclusion: The Story Two Years On, by Leena Datwani. http://www.cgap.org/publications/india%E2%80%99s-push-financial-inclusion