Economists, social scientists root for basic income in India

August 06, 2017

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Group of women in Aurangabad, India

Simone D. McCourtie / World Bank

Economists and social scientists made a strong pitch for reducing expenditures on subsidies and introducing basic income for the people of India at the IDRC-supported National Conference on Universal Basic Income. Organized by the Self-employed Women’s Association (SEWA Bharat) and the India Network for Basic Income, the conference brought together “some of the best brains in the world that presented some very convincing arguments over two days,” said Anindya Chatterjee, IDRC’s regional director for Asia.

Approximately 37% of India’s population of 1.2 billion is reported to live below the poverty line, while according to the latest National Family Health Survey, the proportion of malnourished children sits at 35%. Several other Indian economic and health indicators are also dire, indicating the poor performance of the initiatives that seek to serve them. Several of these initiatives are in the form of subsidized food through the Public Distribution System, or the provision of meals through childcare centres and schools. These initiatives have not delivered the intended results and have come under criticism.

Subsidies

As much as 7% of India’s GDP is spent on subsidies. A number of economists expressed their criticism of the subsidy system, which is often regarded as a means of patronage to serve vested interests. One of India’s leading economists, Montek Singh Ahluwalia, said subsidies on agriculture (farmers do not pay income tax in India) and agricultural products are more advantageous and more frequently used by rich farmers than poor, serving people with vested interests rather than the intended beneficiaries.

Basic income studies

While a few organizations such as SEWA have researched the impact of basic income, the Government of India’s recent Economic Survey 2017–18 calls universal basic income “an alternative to a plethora of state subsidies for poverty”. The Indian government has been discussing the idea of conditional cash transfers in some of its initiatives, such as the nutrition scheme for pregnant women and nursing mothers. The benefits of cash transfer and basic income are being debated, but studies have shown that basic income benefits people in the short and long term.

The Madhya Pradesh unit of SEWA conducted a pilot study of two villages: Ghoda Khurd, where basic income was provided to residents, and Bilami, which served as a control village with no intervention. Data recorded in the two villages one year after the program ended showed profound changes in financial and other aspects of people’s lives in Ghoda Khurd, while little or no such change was seen in Bilami. In Ghoda Khurd, the proportion of self-employed persons increased from 45% to 50% after one year, and remained at 50% after four years, while in Bilami the proportion of self-employed persons dropped from 50% to 19% after one year due to a drought, and increased to 33% after four years. Ghoda Kurd’s residents also saw a dramatic increase in the ownership of small and large animals, residents used their income to seek private healthcare, and they reported greater control over their lives.

One of these residents is Radha Ben, who was present at the conference. Ben said that she and her husband worked as casual labourers with no money to cultivate their small farm. Once she received basic income, the family’s economic mobility changed dramatically. Ben now owns livestock, she loans out oxen, and she has stopped working as a casual labourer. The farm is being cultivated and is adding to her family’s income. Her husband, however, has returned to casual work, but their situation is much better than before, she said.

Well-known economist Abhijeet Banerjee, professor of economics at the Massachusetts Institute of Technology, presented evidence from seven countries that demonstrated the impact of basic income. “Evidence shows that even seven years after they received financial support, people are 50% richer, are eating better, have better health, and are happier,” he said.

Basic income a possibility?

Some experts and economists, however, discussed the economic burden that universal or targeted basic income would impose on the public exchequer in terms of competing development priorities and limited availability of funds. Economist Sudipto Mandal dwelled on the dilemma of who to include and who to leave out. “This would need to be managed cautiously,” he said.

There is also a contrarian view of basic income, which argues that it could make people lazy because they would receive money without working, or that additional income could be spent on alcohol. Jhabvala, from SEWA, responded to both issues. She cited evidence from the research that demonstrates that basic income actually helped to reduce alcohol consumption because people were less depressed when they received regular income. In fact, the extra money was often used to start enterprises.

Although the idea of basic income has appeared in the Economic Survey, it is not clear whether the Indian government is seriously considering it as a replacement for the inefficient subsidy-based schemes. Member of Parliament Balijayant Panda, one of the conference speakers, expressed his support for basic income but said that currently India’s political will is “not in place” on whether people should have a basic income.