{"id":11803,"date":"2021-03-25T13:52:25","date_gmt":"2021-03-25T08:22:25","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=11803"},"modified":"2021-03-25T13:53:08","modified_gmt":"2021-03-25T08:23:08","slug":"india-aspire-universal-basic-income","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/india-aspire-universal-basic-income\/","title":{"rendered":"INDIA ASPIRE: UNIVERSAL BASIC INCOME.!"},"content":{"rendered":"

According to the Economic Survey 2016-17, universal basic income may prove to be a more effective antipoverty intervention than India\u2019s largest welfare schemes. Discussing the Survey\u2019s proposal, Saksham Khosla contends that while it deserves praise for bringing substantial rigour to the UBI debate, thrusting the issue into the national spotlight, and prudently concluding that the time has not yet come for implementation; its central design features offer a weak foundation for implementing UBI.<\/em><\/p>\n

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The idea of a universal basic income (UBI) \u2013 periodic and unconditional cash payments to all citizens \u2013 has gained renewed attention amid growing concerns about technological unemployment1<\/sup>\u00a0in advanced economies. More recently, economists have made the case for a UBI in the developing world, where cash transfers distributed to all citizens, rich and poor, may cut through layers of red tape and lead to\u00a0outsize\u00a0gains in poverty reduction.<\/p>\n

In India, a rapid expansion of direct cash transfers linked to the national biometric database and small basic income experiments have galvanised an extensive debate on a UBI. Supporters claim that no-strings-attached payments will be an effective antidote to India\u2019s underperforming antipoverty programmes and leaky, distortionary subsidies. Critics worry that they will undermine an already-fragile social security architecture, cause workers to drop out of the labour force, and encourage wasteful spending.<\/p>\n

The Economic Survey 2016\u201317 provides the most exhaustive treatment thus far of implementing an Indian UBI. It finds that India\u2019s largest welfare schemes are poorly targeted; in comparison, it argues that a UBI distributed directly into bank accounts will limit pilferage, be easier to administer, and prove a more effective antipoverty intervention.<\/p>\n

The Economic Survey deserves praise for bringing substantial rigour to the debate, thrusting a UBI into the national spotlight, and prudently concluding that the time has not yet come for implementation. However, should future Indian policymakers wish to implement a UBI, the Survey\u2019s central design features offer a weak foundation. If enacted upon without deeper analysis, debate, or sufficient evidence demonstrating improvement in development outcomes, the Economic Survey\u2019s blueprint for an Indian UBI will produce underwhelming results.<\/p>\n

The Economic Survey\u2019s proposal<\/strong><\/h3>\n

A UBI, according to the Economic Survey, has three key characteristics: every citizen receives cash payments, these payments are unconditional, and each individual is free to spend these funds as they wish. The Survey marshals a number of common arguments in favour of a UBI. It contends that a UBI can maximise social justice by giving each individual ownership over a share of the country\u2019s collective wealth. The Survey asserts that cash transfers are less paternalistic than in-kind assistance and empower India\u2019s poor to make economic decisions as they see fit. As employment growth becomes more uncertain, the Economic Survey suggests that a guaranteed basic income can help ensure that citizens enjoy a basic standard of living. Finally, by making use of the JAM2 3<\/sup>(Jan Dhan, Aadhaar<\/em>, Mobile)\u00a0trinity, a UBI would inject administrative efficiency and transparency into a welfare system \u201criddled with misallocation, leakages and exclusion of the poor.\u201d<\/p>\n

This last point forms the bedrock of the Economic Survey\u2019s case that a UBI is a potential poverty-fighting tool that can perform significantly better than the country\u2019s 950-odd centrally-sponsored schemes (and scores of other state-level programmes). To evaluate the targeting efficiency of India\u2019s current welfare spending, the Survey used administrative data on public spending from 2015\u201316 and population data from the 2011\u201312 round of the National Sample Survey (NSS) to construct \u2018heat maps\u2019 of poor households in each district and the amount that each district spent on the six largest welfare schemes. The results depict the striking extent of misallocated welfare funds: districts where poverty is most prevalent \u2013 in states such as Bihar, Chhattisgarh, Madhya Pradesh, and Uttar Pradesh \u2013 tend to be given the fewest financial resources. The districts where 40% of India\u2019s poor reside get only 29% of this total funding.<\/p>\n

The Economic Survey argues that a UBI would be an effective antidote to these capacity limitations. A transfer from the exchequer to individual bank accounts would be a relatively light administrative burden, and one that could conceivably eliminate rent-seeking and downstream pilferage. Moreover, in a universal system, the rate of exclusion from receiving benefits would systematically decline.<\/p>\n

Features:\u00a0<\/em>The Survey estimates that an annual transfer of Rs. 7,620 (US$120) to 75% of India\u2019s population will push all but India\u2019s absolute poorest above the 2011\u201312 Tendulkar poverty line.
\n\u2022 The Survey puts the cost of such a scheme at 4.9% of India\u2019s gross domestic product (GDP). It finds that a budget-neutral transfer can only materialise after existing programmes are withdrawn. In 2014-15, India\u2019s major fertiliser, petroleum, and food subsidies cost 2.07% of GDP, while the 10 largest central welfare schemes cost 1.38%. So-called middle-class subsidies (that primarily benefit the better-off citizens) such as those on railways, aviation fuel, gold, and electricity, add up to nearly 1.1% of GDP.
\n\u2022 Arguing that true universality will be politically and fiscally costly, the Survey advises paying out the grant to all but the top 25% of India\u2019s income distribution. It suggests several ways of preventing the wealthy from availing the grant, including proxy-means tests, voluntary opt-out, community sanction, self-targeting, and targeting demographic groups.
\n\u2022 The Survey also noted that universal financial inclusion, in combination with the\u00a0Aadhaar3<\/sup><\/em>\u00a0authentication system, forms a prerequisite to send transfers directly to beneficiaries\u2019 bank accounts. A UBI can only be financed if policymakers can hammer out an expenditure-sharing formula for central and state governments.<\/p>\n

Any meaningful analysis of the UBI proposal must grapple with several assumptions and prescriptions that compel deeper scrutiny, and others that warrant active contestation. In particular, these include the semantic oddity of a \u201cquasi-universal basic income,\u201d the Survey\u2019s inconsistent treatment of the merits of targeting welfare benefits and India\u2019s flagship\u00a0antipoverty\u00a0programmes, and its limited imagination when estimating the impact of removing existing welfare schemes. Other important matters to explore are the Survey\u2019s insufficient engagement with non-cash-based poverty interventions and its inadequate\u00a0acknowledgment\u00a0of the current implementation deficit of the Direct Benefit Transfer (DBT) programme. As the debates around the idea of an Indian UBI mature, these questions should be first in line for answers.<\/p>\n

Bugs:\u00a0<\/em>The proposed transfer is less an income and more an income supplement. The Tendulkar line has been criticized for being too conservative an estimate of consumption and expenditure. The Survey\u2019s calculations incorporate neither the loss of consumption from withdrawing major existing welfare programmes to finance a\u00a0UBI,\u00a0nor the transaction and transition costs of moving to a welfare system dominated by cash transfers. Taking these factors into account is likely to result in an upward revision of the transfer amount and associated fiscal burden.
\n\u2022 The survey is unjustified in presenting India\u2019s largest welfare schemes as candidates for replacement. Several such programmes are intended to achieve long-term development goals and cannot be simply substituted by cash transfers. In addition, India\u2019s national food distribution and public works programmes, which the Survey singles out for their high levels of misallocation and leakage, have improved significantly over the past decade in terms of their coverage and targeting efficiency.
\n\u2022 By discarding universal coverage, the survey leaves the door open for inefficient means-testing. Targeting performance can vary quite widely, and any savings generated thus can be offset by high administrative, private, social, and political costs. If targeting must be instituted, universal transfers among clearly defined vulnerable groups offer a tentative answer to this dilemma.
\n\u2022 An exclusive reliance on\u00a0Aadhaar<\/em>-linked welfare payments is short-sighted. Pilot evaluations of direct benefit transfers have found significant room for improvement in last-mile delivery, the size of the subsidy, and grievance redressal, even as authentication failures and exclusion errors due to\u00a0Aadhaar<\/em>\u00a0persist. Significant progress remains to be made before large-scale\u00a0Aadhaar<\/em>-linked transfers can be trusted to reach recipients.<\/p>\n

Pricing experiments<\/strong><\/h3>\n

Rather than relying exclusively upon the Survey\u2019s proposed methods for financing, targeting, and distributing a UBI, Indian policymakers should join their Finnish and Canadian counterparts in running one or several large-scale experimental evaluations. There is much reason to believe that in India, too, a randomised control trial (RCT) of sufficient length (ideally, more than five years so as to resist electoral pressures), administered by a state government and evaluated by an independent authority, would galvanise awareness and help clarify several of the deep knowledge gaps around the implementation design and political economy of a UBI. By determining the impact on both the government (State and fiscal capacity) and citizens (economic and social outcomes), such trials can generate new empirical evidence to inform the growing UBI debate and reveal the most effective role for unconditional transfers in India\u2019s welfare architecture.<\/p>\n

Conclusion<\/strong><\/h3>\n

For all its acuity and painstaking effort in defining the contours of the problem, the Economic Survey\u2019s prescription is flawed both in its proposed design and implementation. Far from what is needed to realise its ambitious vision, the Survey proposes a cash transfer with a dubious ability to compensate beneficiaries for the transition costs of moving to a new system, and one that would be financed by an indiscriminate culling of existing welfare schemes. Examining the existing literature on targeting approaches, necessitated by the survey\u2019s emphasis on \u201cquasi-universalism\u201d, reveals that their impact on efficiency and cost-effectiveness can vary greatly based on administrative capacity, imperfect information, and unintended costs. The benefits of finer targeting can often be achieved at lesser cost by expanding coverage of in-kind benefits or providing uniform transfers contingent on a simple set of transparent, verifiable criteria, if not untargeted and uniform transfers. There is also the very real possibility that both national and regional politics may distort the original intent and value of a UBI into a scheme indistinguishable from India\u2019s DBT regime, which suffers from its own implementation deficit, compounded by the unresolved concerns surrounding the\u00a0Aadhaar<\/em>\u00a0framework.<\/p>\n

The uncertainty about the design choices (which go beyond targeting to include the duration and frequency of transfers) and the political feasibility of a UBI emphasises the need for an Indian UBI pilot of sufficient length to test the impact of introducing regular, unconditional, universal cash transfers. A basic income trial implemented by a state administration (or several, such as the variety of municipal tests\u00a0under way\u00a0in the Netherlands) to accurately mimic real conditions, with an independent organisation running a large-scale experimental evaluation, would generate the hard evidence that the empirical and political discourse around an Indian UBI gravely needs before it can graduate from academic conferences and opinion pages into parliamentary debate and legislation.<\/p>\n

It is also important to be clear-headed about the virtues of evidence. Instituting a UBI requires public support spanning demographic lines, executive backing, and strong macroeconomic fundamentals. Weaken any leg of this tripod, and the redistributive preferences of any government may shift in favour of traditional welfare support and focusing on economic growth. And even if an experiment were to yield spectacular results, the financing question is key. If practicalities dictate that India\u2019s tenuous social protection framework be sacrificed at the altar of a basic income, then it would turn quickly from manna from heaven to actively undermining the Indian social contract.<\/p>\n

None of these objections forms an insurmountable obstacle toward one day implementing a clean, well-designed UBI that simultaneously empowers Indian citizens and strengthens the Indian State. Some of them may even lose their edge if India can fill the evidence gap around such policies and build administrative muscle by recasting its systems of public financial management and tax collection, with accompanying reforms to boost digital payments and financial inclusion.<\/p>\n

In 1961, Nehru wrote to India\u2019s chief ministers that \u201cIt is generally recognized now, even by our critics in India or abroad, that we plan well and we lay down the most excellent of principles. The difficulty comes in implementation.\u201d Unless both the policy\u2019s critics and supporters undertake a concerted effort to better address the above discordances, India\u2019s UBI will meet the same fate.<\/p>\n

Notes:<\/em><\/p>\n

    \n
  1. 1. Technological unemployment is the loss of jobs caused by technological change.<\/li>\n
  2. 2.\u00a0Jan Dhan Yojana<\/em>\u00a0is the National Mission for Financial Inclusion to ensure access to financial services, namely banking savings and deposit accounts, remittance, credit, insurance, and pension in an affordable manner. This financial inclusion campaign was launched by Prime Minister Modi in August 2014.<\/li>\n
  3. 3.\u00a0Aadhaar<\/em>\u00a0is a 12-digit individual identification number issued by the Unique Identification Authority of India (UIDAI) on behalf of the Government of India. It captures the biometric identity \u2013 10\u00a0finger prints, iris and photograph \u2013 of every resident, and serves as a proof of identity and address anywhere in India.<\/li>\n<\/ol>\n

    Courtesy : Saksham Khosla<\/strong><\/a> (Carnegie india).<\/p>\n","protected":false},"excerpt":{"rendered":"

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