Arvind Subramanian, the chief economic advisor to the Government of India, has a deep concern for the environment and poverty. Speaking at an outreach event in the city of Bhubaneswar, he fielded a student’s question about universal basic income, expressing support for this radical system of wealth distribution.
Under the system of unconditional livelihood provision all citizens of a given society receive a standard amount of money to ensure they could pay for essential items like food, clothing, and shelter. If everyone had enough money to survive and contribute to society, the thinking goes, governments could eliminate poverty altogether.
The student wondered whether, given the growing popularity of basic income in Kenya, Switzerland, Finland, the Netherlands, Canada, and the US, India might be next. Subramanian replied that the country has in fact already seen small pilots of the system lead to positive outcomes. He added that basic income will play a major role in the next Economic Survey, an annual document presented to parliament that outlines the country’s financial health and makes suggestions for the future.
“People are dragged into poverty due to droughts, declining agriculture opportunities, disease, and so on,” he said, according to the Times of India.”So the safety net provided by the government should be quite wide, and that is why this [basic income] has some merit.”
Professor Guy Standing from the School of Oriental and African Studies, UK, set out eleven particularly significant findings from the pilot studies
- Many used money to improve their housing, latrines, walls and roofs, and to take precautions against malaria.
- Nutrition was improved, particularly in scheduled caste (SC) and scheduled tribe (ST) households. Perhaps the most important finding was the significant improvement in the average weight-for-age of young children (World Health Organization z-score), and more so among girls.
- There was a shift from ration shops to markets, made possible by increased financial liquidity. This improved diets, with more fresh vegetables and fruit, rather than the narrow staple of stale subsidized grains, often mixed with stones in the bags acquired through the shops of the Public Distribution System (PDS), the government-regulated food security system. Better diets helped to account for improved health and energy of children, linked to a reduced incidence of seasonal illness and more regular taking of medicines, as well as greater use of private healthcare. Public services must improve!
- Better health helped to explain the improved school attendance and performance (figure 1), which was also the result of families being able to buy things like shoes and pay for transport to school. It is important that families were taking action themselves. There was no need for expensive conditionality. People treated as adults learn to be adults; people treated as children remain childlike. No conditionality is morally acceptable unless you would willingly have it applied to yourself.
- The scheme had positive equity outcomes. In most respects, there was a bigger positive effect for disadvantaged groups – lower-caste families, women, and those with disabilities. Suddenly, they had their own money, which gave them a stronger bargaining position in the household. Empowering the disabled is a sadly neglected aspect of social policy.
- The basic income grants led to small-scale investments – more and better seeds, sewing machines, establishment of little shops, repairs to equipment, and so on. This was associated with more production, and thus higher incomes. The positive effect on production and growth means that the elasticity of supply would offset inflationary pressure due to any increased demand for basic food and goods. It was encouraging to see the revival of local strains of grain that had been wiped out by the PDS.
- Contrary to the skeptics, the grants led to more labor and work (figure 2). But the story is nuanced. There was a shift from casual wage labor to more own-account (self-employed) farming and business activity, with less distress-driven out-migration. Women gained more than men.
- There was an unanticipated reduction in bonded labor (naukar, gwala). This has huge positive implications for local development and equity.
- Those with basic income were more likely to reduce debt and less likely to go into greater debt. One reason was that they had less need to borrow for short-term purposes, at exorbitant interest rates of 5% a month. Indeed, the only locals to complain about the pilots were moneylenders.
- One cannot overestimate the importance of financial liquidity in low-income communities. Money is a scarce and monopolized commodity, giving moneylenders and officials enormous power. Bypassing them can help combat corruption. Even though families were desperately poor, many managed to put money aside, and thus avoid going into deeper debt when financial crises hit due to illness or bereavements.
- The policy has transformative potential for both families and village communities. The whole is greater than the sum of the parts. Unlike food subsidy schemes that lock economic and power structures in place, entrenching corrupt dispensers of BPL (Below Poverty Line) cards, rations, and the numerous government schemes that supposedly exist, basic income grants gave villagers more control of their lives, and had beneficial equity and growth effects.
Guy Standing ends:
A claim we have made in the public debate in India is that universal schemes can be less costly than targeted schemes. Targeting, whether by the discredited BPL card or by other methods, is expensive to design and implement. All targeting methods have high exclusion errors – evaluation surveys showed that only a minority of the poorest had BPL cards.
In sum, basic income grants could be a vital part of a 21st-century social protection system. These are momentous times in Indian social policy. Old-style paternalism must be rejected and a new progressive system constructed.