Universal Basic Income: Practical Considerations for its Implementation in India
The idea of giving every citizen unconditionally a certain sum of money, known as a ‘universal basic income’ (UBI), to meet the daily necessities of life is one of those rare ideas that has both supporters and detractors who cross the political divide. Consequently, debates on whether to introduce the UBI or not have not been accompanied by political baggage that characterises discussions on most other issues. The use of the term ‘income’ in UBI is misleading since income denotes compensation for work carried out by the individual, whereas the idea behind the UBI is the precise opposite, namely, an unconditional cash transfer from the state to the individual that is not tied to any work or employment. Paradoxical as it may sound, while some on the left see the UBI leading to a greater role for the state in determining the quantum and dispersal of ‘basic income’, many on the right view it as an exit door for the state by leaving all decisions on spending to the individual. While the former see UBI as a vehicle for implementing the idea of a welfare state, the latter view the UBI concept as moving from a state-determined view of welfare to that of the individuals themselves.
UBI has a long history that can be traced back to the work of Thomas Spence and Thomas Paine in the late 18th century. The idea remained dormant until the early part of the nineteenth century when the enumeration of poverty in Britain by people such as Seebohm Rowntree and work in documenting the living conditions of the working class by Charles Booth provided the seeds for a social movement for a ‘basic income’ in the 1920 s that drew in as proponents the British philosopher Bertrand Russell and social reformer Clifford Douglas. The UBI idea was modified to the proposal for a negative income tax in the 1970s in the US by the Nobel prize-winning economist Milton Friedman. While that proposal did not go anywhere, the move to a welfare state in Britain following the Second World War led to UBI taking a back seat in many European countries. UBI therefore went off the discourse until it remerged, and this time as a hot topic, in the early part of the new millennium. The discourse intensified following the GFC in late 2007 and early 2008, and UBI began to be actively canvassed following the Euro and the Greek debt crises in the present decade. The support base now includes Mark Zuckerberg, the late Stephen Hawking, Elon Musk and Bernie Sanders. And, yet, so little do we know of the practical aspects of the UBI’s implementation that supporters and critics have very little evidence to base their arguments on. The two main trials of the UBI that have taken place recently are that in Finland in January, 2017 (still going) and in Madhya Pradesh, India in 2010. Both trials involved randomized control experiments and, while the results have not been conclusive, they provide some support for pursuing the idea.
So what is it about UBI that generates such strong support and at the same time so much dissent?
The rationale behind the UBI in the developed countries such as in Europe is somewhat different from that in India. In the former, while automation and adoption of labour saving technologies leading to loss of employment has generated a wave in favour of UBI, in India the leakages and corruption in in kind transfer schemes such as the Public Distribution System (PDS) and the Midday Meals Scheme (MDMS) have been cited as the main reasons for favouring a switch to UBI that is less amenable to leakage since the money is transferred directly to the individual’s bank accounts. As argued below, the time is not yet ripe for the UBI to be made operational in India.
The fundamental difference between cash transfer and in kind transfer is one of principle. In the former, the state abdicates its responsibility to the individual by leaving that person to decide how to spend the money, in the latter the state ensures that the resources are directed to the ends that best serve that individual’s interest. For example, according to FAO, India is one of the most nutritionally deprived and calorie poor countries in the world, ranking 126 on per capita calorie consumption in a list of 172 countries. The bulk of her calorie consumption comes from the PDS items, Rice and Wheat, which on the basis of the NSS 68 th round (2011/2012) still provide nearly half of her calorie intake at household level. PDS is the most prominent example of an in kind transfer that will be severely curtailed to provide the resource requirement for an UBI. The same is true of the MDMS which, notwithstanding several problems with its implementation in the early stages, is now playing an effective role not only in providing nutrient enhancing meals to the school children, but has a positive role in increasing school attendance. Moreover, both PDS and MDMS have income effects, analogous to cash transfer, by leaving the household with more money to spend on the non PDS items in case of the former, and items not exclusively consumed by the children in case of the latter. As has been documented in the media, the performance of the PDS has improved in recent years with a lot less leakages and reduced corruption in its implementation.
India has one of the most dismal statistics on child health anywhere and that has persisted in spite of an impressive increase in per capita income. Schemes such as MDMS and Integrated Child Development Scheme (ICDS) provide the state with tools for effective nutrient enhancing interventions that it will abandon in case there is a large-scale switch to cash transfers. There is not much evidence to suggest that income increases automatically translate to health improvements. In calculations on NSS data from the 68 th round reported in Ray and Sinha (2019), we find that an UBI that is at least four times the Tendulkar poverty line will be required to bring down the rate of undernourishment to ‘acceptable levels’. Indian women suffer from iron deficiency that leads to anemia and other diseases. There is no evidence that unconditional cash transfers will be more effective in tackling iron deficiency than state interventions through well designed information and distribution programs that promote a well balanced diet including good sources of iron, vitamin B12 and folate.
The danger of rushing to the UBI right now is that the determination of an appropriate level for ‘basic income’ will be ad hoc and will suffer from the same problems as that faced in the determination of the poverty line. Once a level is arrived at for ‘basic income’, it will give the state the pretext for opting out of all in kind transfer based welfare programs. However, given the many attractive features of UBI such its administrative simplicity and its relative insulation from leakages and corruption, it will be unwise to abandon the idea of UBI altogether. The planners need to conduct trials extensively on the optimal mix of cash and in kind transfers, and move away from an exclusive reliance on one or the other. The strategy should be to work out a balance between cash and in kind transfers.
Professor Ranjan RayMonash University, Melbourne
References 1. Ray, Ranjan and Sinha, Kompal (2019), “Food Consumption, Calorie Intake and Undernourishment in India: The Recent Evidence on the Role of Welfare Schemes” in Disease, Human Health, and Regional Growth and Development in Asia edited by Amitrajeet A. Batabyal, Yoshiro Higano, Peter Nijkamp. Springer.2. This is a revised and shortened version of an article that appeared in The Telegraph: https://www.telegraphindia.com/opinion/basic-health-before-basic-income/cid/1466011getRandomImage(‘Universal-Basic-Income’)
UBI has a long history that can be traced back to the work of Thomas Spence and Thomas Paine in the late 18th century. The idea remained dormant until the early part of the nineteenth century when the enumeration of poverty in Britain by people such as Seebohm Rowntree and work in documenting the living conditions of the working class by Charles Booth provided the seeds for a social movement for a ‘basic income’ in the 1920 s that drew in as proponents the British philosopher Bertrand Russell and social reformer Clifford Douglas. The UBI idea was modified to the proposal for a negative income tax in the 1970s in the US by the Nobel prize-winning economist Milton Friedman. While that proposal did not go anywhere, the move to a welfare state in Britain following the Second World War led to UBI taking a back seat in many European countries. UBI therefore went off the discourse until it remerged, and this time as a hot topic, in the early part of the new millennium. The discourse intensified following the GFC in late 2007 and early 2008, and UBI began to be actively canvassed following the Euro and the Greek debt crises in the present decade. The support base now includes Mark Zuckerberg, the late Stephen Hawking, Elon Musk and Bernie Sanders. And, yet, so little do we know of the practical aspects of the UBI’s implementation that supporters and critics have very little evidence to base their arguments on. The two main trials of the UBI that have taken place recently are that in Finland in January, 2017 (still going) and in Madhya Pradesh, India in 2010. Both trials involved randomized control experiments and, while the results have not been conclusive, they provide some support for pursuing the idea.
So what is it about UBI that generates such strong support and at the same time so much dissent?
The rationale behind the UBI in the developed countries such as in Europe is somewhat different from that in India. In the former, while automation and adoption of labour saving technologies leading to loss of employment has generated a wave in favour of UBI, in India the leakages and corruption in in kind transfer schemes such as the Public Distribution System (PDS) and the Midday Meals Scheme (MDMS) have been cited as the main reasons for favouring a switch to UBI that is less amenable to leakage since the money is transferred directly to the individual’s bank accounts. As argued below, the time is not yet ripe for the UBI to be made operational in India.
The fundamental difference between cash transfer and in kind transfer is one of principle. In the former, the state abdicates its responsibility to the individual by leaving that person to decide how to spend the money, in the latter the state ensures that the resources are directed to the ends that best serve that individual’s interest. For example, according to FAO, India is one of the most nutritionally deprived and calorie poor countries in the world, ranking 126 on per capita calorie consumption in a list of 172 countries. The bulk of her calorie consumption comes from the PDS items, Rice and Wheat, which on the basis of the NSS 68 th round (2011/2012) still provide nearly half of her calorie intake at household level. PDS is the most prominent example of an in kind transfer that will be severely curtailed to provide the resource requirement for an UBI. The same is true of the MDMS which, notwithstanding several problems with its implementation in the early stages, is now playing an effective role not only in providing nutrient enhancing meals to the school children, but has a positive role in increasing school attendance. Moreover, both PDS and MDMS have income effects, analogous to cash transfer, by leaving the household with more money to spend on the non PDS items in case of the former, and items not exclusively consumed by the children in case of the latter. As has been documented in the media, the performance of the PDS has improved in recent years with a lot less leakages and reduced corruption in its implementation.
India has one of the most dismal statistics on child health anywhere and that has persisted in spite of an impressive increase in per capita income. Schemes such as MDMS and Integrated Child Development Scheme (ICDS) provide the state with tools for effective nutrient enhancing interventions that it will abandon in case there is a large-scale switch to cash transfers. There is not much evidence to suggest that income increases automatically translate to health improvements. In calculations on NSS data from the 68 th round reported in Ray and Sinha (2019), we find that an UBI that is at least four times the Tendulkar poverty line will be required to bring down the rate of undernourishment to ‘acceptable levels’. Indian women suffer from iron deficiency that leads to anemia and other diseases. There is no evidence that unconditional cash transfers will be more effective in tackling iron deficiency than state interventions through well designed information and distribution programs that promote a well balanced diet including good sources of iron, vitamin B12 and folate.
The danger of rushing to the UBI right now is that the determination of an appropriate level for ‘basic income’ will be ad hoc and will suffer from the same problems as that faced in the determination of the poverty line. Once a level is arrived at for ‘basic income’, it will give the state the pretext for opting out of all in kind transfer based welfare programs. However, given the many attractive features of UBI such its administrative simplicity and its relative insulation from leakages and corruption, it will be unwise to abandon the idea of UBI altogether. The planners need to conduct trials extensively on the optimal mix of cash and in kind transfers, and move away from an exclusive reliance on one or the other. The strategy should be to work out a balance between cash and in kind transfers.
Professor Ranjan RayMonash University, Melbourne
References 1. Ray, Ranjan and Sinha, Kompal (2019), “Food Consumption, Calorie Intake and Undernourishment in India: The Recent Evidence on the Role of Welfare Schemes” in Disease, Human Health, and Regional Growth and Development in Asia edited by Amitrajeet A. Batabyal, Yoshiro Higano, Peter Nijkamp. Springer.2. This is a revised and shortened version of an article that appeared in The Telegraph: https://www.telegraphindia.com/opinion/basic-health-before-basic-income/cid/1466011getRandomImage(‘Universal-Basic-Income’)
