At the moment, India is in the grip of election fever and it is not surprising that each political party is promising sops to the farmers and the poor. Well, the ruling party started doling out a farmer income support programme called PM KISAN (Pradhan Mantri Kisan Samman Nidhi) from December last year which promises around 120 million small and marginal farmers who have less than 2 hectares of land, Rs 6,000 per year as a minimum income support programme. They had the luxury of promising it in the budget (which was supposed to be an interim one) and so have a headstart. The main national opposition party, the Congress, has promised its own better-and-improved version of it for farmers, if they get elected. Called NYAY (Nyuntam Aay Yojana), it promises those in the lowest income quintile (not just farmers), an amount of Rs. 6,000 per month.
The first scheme is estimated to cost around 0.40% of GDP, while Congress’s plan will cost around 2.0% of GDP. There is no denying that there is severe farm and rural distress in India (which wasn’t helped by Modi’s demonetization programme) that needs to be addressed and yet many are calling these schemes election gimmicks and fiscally irresponsible.
Now, the competition of ideas is always to be welcomed, but on the right set of parameters. I have a slightly different view on these schemes which is that they offer only a brief respite – if at all – since many farmers (particularly the landless) are not covered by the first scheme. They don’t help in solving the real problem of falling farm productivity and farm incomes. Raising the MSP (Minimum Support Prices) and farm loan waivers have been frequently resorted to whenever politically expedient. India needs agricultural reforms of a holistic kind, that tackles the problems of falling value added, low price realisation for farmers, middle-men and the market mechanism for agricultural produce, supply chain management and a host of other issues. No party or government has the political will or the stomach for it.
At a time like this, one thinks of the new idea of Universal Basic Income or UBI as it is known, and its applicability in a country like India. And a talk that I attended recently at the International Centre in Goa gave me an opportunity to listen to an economist’s views on UBI and to read more on the recent research that is being done on it. Professor Maitreesh Ghatak of the London School of Economics was here to deliver a lecture on UBI and its feasibility for India. It is an idea that has generated a lot of interest and debate in recent years, not just in India, but across the world. As Mr. Ghatak pointed out, UBI is being seen in the West as a way to protect workers from the onslaught of automation and AI on their jobs. Finland has recently conducted a pilot project for UBI and the results haven’t been very conclusive on the benefits, which probably explains why it is being discontinued there. Meanwhile, in developing countries like India, UBI is being studied as a way of protecting the poor.
The economist, Arvind Subramanian, former Chief Economic Advisor to the Finance Ministry in India, initiated the discussion first in India, with a chapter devoted to UBI in the Economic Survey 2016-17. It was seen as a way to deliver social welfare benefits in a more efficient manner, without all the waste, corruption, and errors that plague current schemes and was meant to be a game-changer. Of course, it stopped short of a policy recommendation since it might have been too premature for that, but the idea had been seeded.
Maitreesh Ghatak’s lecture focused on the main issues framing the UBI debate in India, as indeed in other countries around the world. These are: 1) Why cash? 2) Why a flat lumpsum amount and not a progressive structure? 3) Why universal and not targeted? 4) How will it be funded? He spoke about the rationale for each and they almost all had to do with how the scheme is likely to be best delivered, how it can avoid errors of inclusion/exclusion, how it can be easily administered with the least wastage and scope for corruption, etc. And finally, the issue of how India can find the fiscal space for it; he cited various studies including by Sudipto Mundle and Satadru Sikdar on subsidies in India which might provide clues as to which subsidies are wasteful and can be expended with. He also mentioned his own ongoing research about the possibility of combining UBI with an employment generation programme like MNREGA. Perhaps, he is devising a way of overcoming critics of UBI who see it as an incentive to not work.
Mr Ghatak also spoke about Abhijit Banerjee’s (Economics Professor at MIT and head of their Poverty Action Lab) ongoing research on UBI using RCTs (Randomized Control Trials) in several developing countries for the World Bank. I read Mr Banerjee’s preliminary paper on this, and a few aspects of how UBI can work – although it is early days yet – struck me as interesting. First, he talks of the “interaction effects” of UBI and how it affects not just the individual, but his/her neighbours and others in the locality or village. Second, he says because these are cash transfers to individuals, the amounts are sometimes too small in relation to the local economy, to base any evidence upon. Third, he does discuss the different purposes to which UBI can be put and how the effects would, therefore, be different. For example, he says programmes aimed at preventing hunger or extreme suffering would operate only during shocks. Whereas pensions could be an exception: they are like UBI payments for the elderly. Fourth, he mentions an experiment in Ethiopia, where subsistence farmers were shown a set of 4 documentaries, of 15 minutes duration each, in which families like them describe how they were able to meaningfully improve their lives by working hard and making various routine investments in farming, micro-enterprises, etc. After 6 months and after 5 years, households exposed to these films reported substantially higher aspirations for their own futures.
The fourth aspect was a pleasant surprise for a communications professional like me; if only communication could work this effectively on audiences every time! However, it is the third point about how UBI can be used, that I find missing in most debates on UBI. Before we jump to issues of administration or funding, shouldn’t we have greater clarity on what is the specific objective that we would like UBI to achieve first? A country in the West might use UBI to protect and re-train their workers when they are out of work. Another in Africa might use UBI to improve primary and secondary education outcomes. Yet another country in Asia might use UBI to turn their semi-skilled and unskilled workers into entrepreneurs.
If we have very little idea what we intend to do with UBI, or if we see it merely as a substitute for a whole lot of inefficient social schemes, I fear we might fall short of seeing its full potential. I also don’t think many subsidies for BPL (below poverty line) families can be abolished, as Arvind Subramanian and his co-authors have suggested in a paper that was published by the Business Standard in India earlier this year, and that he shared on Twitter recently. In this paper, the authors seem to be trying to find a way to finance UBI, without putting all the burden on the Central Government. In the process, they have scaled down the scope and reach of the programme and I have to say some of the UBI-ness is already lost and they have therefore christened it Quasi-Universal Basic Rural Income. My reply to Arvind Subramanian (even before I had read the article) was in the form of a question: Doesn’t he think that any UBI type programme is to help tide over a problem and therefore, it must be temporary and time-bound; and to that extent does he agree that many existing schemes can’t be replaced?
The economist, Jean Dreze, has cautioned against the dangers of implementing UBI in an article and he doesn’t advocate removing subsidies altogether. In his talk, Maitreesh Ghatak too stressed on the fact that UBI is not a silver bullet solution and that it cannot function on its own without other infrastructure building programmes like education and healthcare being in place. In trying to think how policy must be framed in India, I am of the opinion that we must first arrive at a realistic, time-bound objective for UBI and it should not hinge on subsidies being cut. Sure, we must make our subsidies work more efficiently as well and perhaps it is time to retire many of them, but that cannot be the basis for UBI to be implemented.
I would prefer a conditional cash transfer for the poor and needy any day, over UBI. It helps the poor financially, while also helping them improve their capacity, by making it incumbent on them to achieve certain health and education outcomes. More importantly, it places the responsibility of providing quality education and healthcare squarely on the shoulders of the government; increasingly, it is the private sector that has stepped into these areas in India, for want of adequate public services. I suspect that is the main reason for not attempting conditional cash transfers in India: the government cannot fulfill the “conditions” that are required on its part. The administrative machinery required to manage and monitor the programme is a secondary concern and I believe that the Indian state does have the capacity to administer it efficiently, if it so wishes.
Conditional cash transfers like the Bolsa Familia in Brazil and Progresa (now Oportunidades) in Mexico have been very successful and several countries across the world have implemented them. Sarah Baird and two other authors have conducted an experiment for the World Bank to study the effects of conditional cash transfers versus unconditional cash transfers in Malawi among adolescent girls. In a country with very high incidence of teen marriage, they found a marked improvement in the girls’ enrollment and staying in school because of the cash transfers; the conditional cash transfers didn’t seem to make much of a difference in this experiment. I think that since it was an experiment among adolescent girls, schooling was an incentive straightaway, irrespective of the condition being imposed or not. However, in programmes like Oportunidades and Bolsa Familia, the conditional cash transfers act as incentives for households to ensure basic and minimum health and education outcomes for their children from when they are very little. Therefore, I don’t think the Malawi experiment offers conclusive evidence against conditional cash transfers.
I hope policymakers in India will carefully study and evaluate the merits and demerits of UBI before rushing headlong into it. As we know only too well in India, once social benefits are introduced, rarely can they be withdrawn; roll-backs of policy only happen when they become politically inconvenient.
Finally, of course, there is no sidestepping the moral issue. I don’t subscribe to the view that UBI is a disincentive to work. But it still begs the question: what is income if not remuneration for work done? If the beneficiary is not required to do any work to earn his or her UBI, can we really call it income? Even a grant requires certain conditions to be met and is a one-time payment, that is time-bound.
Isn’t UBI then a gift? A gift, equally deserved by the rich and the poor?
Then again, I suppose we shouldn’t look a gift-horse in the mouth, as the saying goes.
Peripatetic Perch 