Table of Contents

The Economic Survey’s chapter on a UBI calls the idea a “radical new vision,” and the “shortest path to eliminating poverty.” The chapter makes a substantive case for the merits and limitations of a potential Indian UBI in forty-odd pages. Reading the section in its entirety is recommended to fully appreciate its nuanced, penetrating critique of Indian social protection. Yet the focus here is on the proposal’s notable departure from several key, widely understood tenets of the UBI concept, including the chapter’s recommendation for a “quasi-universal” transfer, its calculation of the income supplement, and its prescriptions for implementing the scheme.

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.

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 favor of a UBI. It contends that a UBI can maximize social justice by giving each individual ownership over a share of the country’s collective wealth. The survey asserts that cash transfers are less paternalistic than in-kind assistance and empower India’s poor to make economic decisions as they see fit. Following Bardhan’s reasoning, it states that once the plumbing of financial inclusion is established, a relatively small cash grant could disproportionately improve welfare outcomes. 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 JAM trinity, a UBI would inject administrative efficiency and transparency into a welfare system “riddled with misallocation, leakages and exclusion of the poor.”1

This last point forms the bedrock of the Economic Survey’s case that a UBI is a potential poverty-fighting tool that can perform significantly better than the country’s 950-odd centrally sponsored schemes (and scores of other state-level programs). To evaluate the targeting efficiency of India’s current welfare spending, the survey used administrative data on public spending from 2015–16 and population data from the 2011–12 round of the National Sample Survey to construct heat maps of poor households in each district and the amount that each district spent on the six largest welfare schemes.2 The results depict the striking extent of misallocated welfare funds: districts where poverty is most prevalent—in states such as Bihar, Chattisgarh, Madhya Pradesh, and Uttar Pradesh—tend to be given the fewest financial resources. The districts where 40 percent of India’s poor reside get only 29 percent of this total funding.3

According to the Economic Survey, this misallocation happens primarily due to low state capacity. Since districts are assigned funding based on their ability to spend and implement schemes, richer districts with more administrative capability inevitably win out.4 This vicious cycle typically means that the eligible poor are denied their due and nonpoor individuals receive benefits, in addition to problems with leakages and corruption. In 2011–12, 40 percent of those in the bottom 40 percent of India’s income distribution were denied their PDS benefits and 65 percent of this population were denied their MGNREGA benefits (see figure 1).5 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.

The Economic Survey is quick to clarify that a “UBI is not a substitute for state capacity: it is a way of ensuring that state welfare transfers are more efficient so that the state can concentrate on other public goods.”6 Beyond just improving the cash-transfer mechanism, the survey notes two novel ancillary benefits of a UBI. Drawing upon a substantial literature on the cognitive impact of poverty, the Economic Survey suggests that a UBI could help enhance individual decisionmaking.7 Further, it estimates that with the resultant proliferation of government-to-person payments, a UBI would likely help stimulate financial inclusion and loosen the credit constraints of the poor.8 This is no soft sell.

By contrast, the Economic Survey finds the case against a UBI to be slim. Refuting claims that a UBI would inject moral hazard into society by encouraging idleness, reducing work incentives, and driving up spending on “temptation goods” like alcohol and tobacco, the survey cites a substantial (and growing) body of literature that finds no effect of cash transfers on these outcomes. Meta-analyses of studies conducted in other developing nations back this assertion. The Economic Survey also presents evidence from the Madhya Pradesh basic income pilots and the 2011–12 round of the National Sample Survey (NSS) that show a decline in spending on tobacco, alcohol, and paan (a combination of betel leaves and nuts used as a digestive or stimulant) with a corresponding increase in overall consumption.9 Another related concern about the implications of individuals’ receiving income divorced from employment and their contributions to society is dispatched swiftly. The survey notes that unearned income in the form of inherited wealth is uncontroversial, and it expects that those who provide unpaid work like childcare and elder care would benefit from the recompense of a UBI.10

Quantifying a Basic Income

What amount does the Economic Survey recommend as a universal payout? Taking the 2011–12 NSS estimates of India’s poverty distribution into account, the survey first aims to reduce India’s poverty rate from 22 percent to 0.45 percent. It then calculates the amount that would be needed to push all individuals at the 0.45 percent consumption threshold over the 2011–12 poverty line of 893 rupees per month.11 Adjusted for inflation, the annual transfer amount would work out to 7,620 rupees per person at 2016–17 prices. Alternatively, assuming that the poor’s consumption has increased proportionally to ensuing growth in GDP since 2011–12, the UBI level would fall to 6,540 rupees per year. These amounts would be indexed to the inflation rate to prevent their real value from being eroded by economic fluctuations.

In a striking departure from the typical features of a UBI, the survey bakes in targeting to exclude those in the top quartile of India’s income distribution.

To estimate the fiscal cost of either amount, the Economic Survey “assumes that in practice any program cannot strive for strict universality, so a target quasi-universality rate of 75 percent is set.”12 In a striking departure from the typical features of a UBI, the survey bakes in targeting to exclude those in the top quartile of India’s income distribution. For the aforementioned transfer amounts, the cost of this quasi-universal basic income would be 4.9 percent and 4.2 percent of India’s GDP respectively. A truly universal cash transfer to all citizens of 7,620 rupees per year would cost 6.5 percent of GDP, while an annual grant of 6,540 rupees would cost close to 5.7 percent.13

The Economic Survey is unequivocal on financing principles: a UBI should not turn into a “Trojan horse that usurps the fiscal space for a well-functioning state” or become merely “an add-on to, rather than a replacement of, current anti-poverty and social programs, which would make it fiscally unaffordable.”14 Rather, the survey finds that a budget-neutral quasi-UBI could not materialize without rolling back India’s existing subsidies and social welfare schemes.

Elaborating on central government finances, the Economic Survey finds that India’s flagship fertilizer, petroleum, and food subsidies for the poor cost roughly 2.1 percent of GDP in 2014–15. Meanwhile, so-called middle-class subsidies (that primarily benefit the better-off citizens) such as those on the railways, aviation fuel, gold, and electricity, add up to nearly 1.1 percent of GDP. The 2015–16 Economic Survey devotes a chapter to determining the benefits accruing to the nonpoor (those not in the bottom three-tenths of India’s income distribution) from various subsidies. This “bounty for the well-off” is estimated at 1 trillion rupees per year.15 The gamut of 950-odd centrally sponsored welfare schemes account for 3.7 percent of GDP (and the ten largest of these constitute about 1.4 percent).16 The survey does not indicate which of these likely candidates deserve to be axed, although it does suggest that a quasi-UBI of 3,240 rupees per year targeted to women could be funded by cutting middle-class subsidies.

Starting Principles

The Economic Survey prescribes two broad tenets for policymakers setting out to craft an Indian UBI policy. The first is the idea of “de jure universality” juxtaposed with “de facto quasi-universality.”17 The survey explains that universality makes for both bad politics and bad economics. It says that the notion of India’s rich benefiting from government largesse by design would likely be unpalatable to India’s poor, and the fiscal space to transfer a meaningful sum to all Indian adults simply does not exist. In its place, the survey proposes universality on paper, but quasi-universality in practice.

To square this circle, it invokes assorted means of preventing cash transfers from reaching the top 25 percent of India’s income distribution. The well-off could be excluded using predefined, verifiable exclusion criteria like automobile ownership or a certain bank account balance. The Ministry of Rural Development initiated the nationwide Socio-Economic Caste Census in 2011 to collect household-level data with the aim of capturing the multidimensional nature of poverty. The census, released in 2015, identified criteria for automatic exclusion from welfare schemes based on parameters ranging from owning a landline phone and paying income tax to having a household member who earns more than 10,000 rupees per month or who is a government employee.18

In contrast to UBI blueprints that would start with a nationwide, centrally funded rollout, the survey counsels a deliberate, iterative process toward phasing in a de facto UBI.

The survey recommends the use of similar indicators to rule out undeserving beneficiaries. The government could ask the rich to decline a basic income grant by introducing a scheme similar to Prime Minister Modi’s Give It Up campaign, whereby he exhorted prosperous Indians to voluntarily relinquish their cooking-gas subsidy.19 It could also publicize the list of beneficiaries so as to name and shame the rich availing themselves of such transfers. Finally, the scheme could take a leaf out of the MGNREGA’s book and institute an administrative requirement to verify all requests for income grants (although the survey notes that this approach “conflicts with the essence of JAM, whose appeal lies in its direct, costless transfer of the state’s welfare subsidies”).20

The Economic Survey’s second principle for policy design is gradualism. In contrast to UBI blueprints that would start with a nationwide, centrally funded rollout, the survey counsels a deliberate, iterative process toward phasing in a de facto UBI.21 Such a strategy could take many forms. The government could offer citizens a choice between in-kind benefits and subsidies or cash transfers. A quasi-UBI could, as Khera and Drèze have suggested, be targeted at specific demographic groups such as women or the recipients of social pensions (widows, pregnant women, the elderly, and the differently abled). A quasi-UBI also could substitute for a portion of the assistance that flows from the central government to state governments.22 Finally, a basic income program could take root in urban areas first, given these areas’ relatively higher degree of integration into financial networks.

Laying the Plumbing

The Economic Survey concludes by laying out the necessary conditions for a successful UBI. It states that a UBI can only be implemented at scale if the JAM trinity can deliver universal financial access through the PMJDY and minimize exclusion errors and misappropriation. A UBI can only be financed if policymakers can hammer out an expenditure-sharing formula for central and state governments. As a precedent for the political and budgetary wrangling that would ensue if a UBI policy were formally pursued, the survey cites the goods and services tax reform that integrated India’s tapestry of overlapping central and state taxes into a unified tax code.

Notes

1 Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” in Economic Survey 2016–17 (Delhi: Government of India, 2017), 174, http://indiabudget.nic.in/es2016-17/echap09.pdf.

2 See Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma.”

3 Ministry of Finance, “Eight Interesting Facts About India,” in Economic Survey 2016–17 (Delhi: Government of India, 2017), xii, http://indiabudget.nic.in/es2016-17/echap09.pdf.

4 The Survey formally defines misallocation as the “shortfall between the share of the overall spending on the top six schemes (2015–16 data) and the share of the overall poor,” in Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” 177.

5 Ibid., 180.

6 Ibid., 174.

7 The survey cites World Development Report 2015: Mind, Society, and Behavior (World Bank, 2015); Mani Anandi, Sendhil Mullainathan, Eldar Shafir, and Jiaying Zhao, “Poverty Impedes Cognitive Function,” Science 341, no. 6149 (2013): 976–80; Johannes Haushofer and Jeremy Shapiro, “The Short-Term Impact of Unconditional Cash Transfers to the Poor: Experimental Evidence From Kenya,” Quarterly Journal of Economics 131, no. 4 (2016): 1973–2042. See also Mullainathan, Sendhil, and Shafir, Scarcity: Why Having Too Little Means So Much (New York: Time Books, 2014).

8 Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” 184–6.

9 Ibid., 187, and Appendix 3.

10 Ibid., 175. For a similar argument, see Matt Bruenig, “The Rich Already Have a UBI,” Jacobin, February 1, 2017, https://www.jacobinmag.com/2017/01/rich-universal-basic-income-piketty-passive-income-capital-income.

11 Planning Commission, “Report of the Expert Group to Review the Methodology for Estimation of Poverty,” Government of India, November, 2009, 17, http://planningcommission.nic.in/reports/genrep/rep_pov.pdf, 5; Planning Commission, “Press Note on Poverty Estimates, 2011–12,” Government of India, July 2013, http://planningcommission.nic.in/news/pre_pov2307.pdf.

12 Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” 188.

13 Ibid., table 3, page 205.

14 Ibid., 172 and 189.

15 Ministry of Finance, “Bounties for the Well-off,” in Economic Survey 2015–16 (Delhi: Government of India, 2015), 95–104, http://indiabudget.nic.in/es2015-16/echapvol1-06.pdf.

16 Given the overlap between subsidies targeted to the poor and the middle class, and the expenditure on central schemes and the social sector, the survey emphasizes that there is likely some double-counting in these estimates. Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” 189–90.

17 Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” 191.

18 Ministry of Finance, “Provisional Data of Socio Economic and Caste Census (SECC) 2011 for Rural India Released,” Press Information Bureau, Government of India, July 3, 2015, http://pib.nic.in/newsite/PrintRelease.aspx?relid=122963; Ministry of Rural Development, “Socio Economic and Caste Census 2011,” Government of India, http://secc.gov.in/welcome, accessed on July 5, 2017.

19 Prime Minister’s Office, “PM Launches “Give It Up” Campaign for Voluntarily Giving Up LPG Subsidy,” Press Information Bureau, Government of India, March 27, 2015, http://pib.nic.in/newsite/PrintRelease.aspx?relid=117760; Annie Gowen, “India’s Wealthy Are Finally Letting Go of an Old Socialist Perk,” Washington Post, July 13, 2015, https://www.washingtonpost.com/world/asia_pacific/indias-wealthy-are-finally-letting-go-of-an-old-socialist-perk/2015/07/13/8dcf16b0-23e5-11e5-b621-b55e495e9b78_story.html?utm_term=.53cae79daf88.

20 Ministry of Finance, “Universal Basic Income: A Conversation With and Within the Mahatma,” 191.

21 Ibid., 191–3. UBI proposals in advanced economies are typically designed with financing and implementation driven by the federal government and intended to cover all citizens from the get-go. See Andy Stern with Lee Kravitz, Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream (New York: Public Affairs, 2016). One substantive UBI outline that does envision scaling up after targeting demographic groups and providing small income transfers: Malcolm Torry, Money for Everyone (Policy Press, 2013) and Anthony Painter and Chris Thoung, “Creative Citizen, Creative State: The Principled and Pragmatic Case for a Universal Basic Income” (2015) available at “Basic Income,” Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA), https://www.thersa.org/action-and-research/rsa-projects/economy-enterprise-manufacturing-folder/basic-income, accessed July 7, 2017.

22 See also Chapter 13, Economic Survey 2016–17. Arvind Subramanian, Rangeet Ghosh, Syed Zubair Noqvi, and Kapil Patidar, “The Pathologies of Redistributive Resource Transfers,” LiveMint, February 15, 2017, http://www.livemint.com/Opinion/ba1tQUh11aS1O4W340xNnO/The-pathologies-of-redistributive-resource-transfers.html.