There are few details in the public domain about the Congress’s NYAY universal basic income scheme. According to Rahul Gandhi, it will provide the poorest 20% of India’s households a basic income of Rs 72,000 a year. The Congress chief estimates that 50 million families, or nearly 250 million people, will benefit. Some ballpark estimates suggest the scheme will cost Rs 3 trillion to Rs 4 trillion a year, or about 2% of the Gross Domestic Product.
Despite the absence of detail – and make no mistake, the devil for this scheme will be in the details – this is not a jumla like Narendra Modi’s promise to put Rs 15 lakh into every Indian’s bank account. Nor is it a lunatic concept like demonetisation. Opinion is divided on basic income schemes, but they have been trialled in different places and there appear to be some benefits.
India already runs 900-odd centrally funded welfare programmes, including the Public Distribution Service for cheap food, fertiliser subsidies for farmers, the National Rural Employment Guarantee Scheme, loan waivers and soft loans, scholarships. Those cost between Rs 2.5 trillion to Rs 3 trillion a year. I am presuming NYAY is not meant to instantly subsume and retire all these programmes. That would be politically difficult for it is easy to create a handout and quite hard to retire it.
But government finances would crack if the fiscal deficit suddenly expanded by 2% of the GDP. If a scheme such as NYAY came into operation, though, it would eventually be possible to scale down, and gradually eliminate, the rural employment guarantee programme, fuel and fertiliser subsidies. Spending on other “make-work” programmes, for instance support for nonsense like homeopathy, would have to be scaled down as well to help fund NYAY.
If the Congress does come to power and goes ahead with NYAY, defining poverty and identifying the poorest 20% of the Indian population will be quite a task. Defining poverty in any case is politically sensitive and there have been controversies every time the poverty line has been defined or redefined. The last time was in 2012, when it was set at an income level of about Rs 37 per day.
A vast component of the Indian economy is informal, which makes it even harder to guess incomes. Given the current messy state of India’s statistics and this government’s reluctance to undertake sample surveys and accept their results, it could be even harder to devise a politically acceptable definition of poverty to identify the intended beneficiaries.
There will undoubtedly be leakages since everybody will want a slice of the NYAY pie. It is also not clear whether the scheme will hand over Rs 72,000 per targeted family or if an attempt will be made to gauge every family’s income and hand over just enough to push that income to the Rs 72,000 mark.
Let’s assume the scheme is actually implemented and eventually covers more people than is currently envisaged. That should still be fine, since the Economic Survey of 2017 estimated that a universal basic income programme could significantly reduce poverty if it covered 75% of the population.
Does it work?
Is universal basic income a more efficient way to eliminate poverty than targeted subsidies? From a purely libertarian perspective – yes, it’s ironic applying libertarian logic to government handouts – giving a person money makes more sense than trying to figure out exactly what they need. Clearly, the needs and priorities of different families are different, especially in a wildly heterogeneous country like India. One family may prefer to spend the cash on education, another on food or setting up a business. (And there will, of course, be the odd family that blows it on alcohol.)
The idea of universal basic income has found supporters among people with diverse political views. Among non-economists, Mark Zuckerberg, Stephen Hawking, Elon Musk and Bernie Sanders have all endorsed it at some point. “Lefties” hope it will reduce poverty and inequality while “Righties” hope single payments will allow for more efficient welfare systems.
But does a universal basic income reduce anxiety among the recipients and allow for simplifying a messy system of subsidies and handouts? It seems so going by feedback from places where such schemes have been trialled on a small scale.
Finland’s version of the universal basic income started in January 2017. A random sample of 2,000 unemployed people aged 25 to 58 was paid €560 monthly – the country had a per capita income of €41,600 in 2017 – without any condition to seek or accept work. Recipients who got jobs continued to receive the same amount. Their feedback was compared to that from a control group of 1,75,000 unemployed people with similar demographics. The pilot ended in December 2018, without conclusive findings, though the official report is yet to be released. The recipients, however, said they felt less stressed.
In Canada’s Ontario province, an ongoing project gives some 4,000 people basic income payments for up to three years. A “comparison group” of 2,000 persons that does not get the payments participates actively in the study. The study looks at how the payments affect food security, stress and anxiety, mental health, housing stability, education and training, employment and labour market participation.
The scheme provides Canadian $16,989 per year for a single person, less 50% of an earned income, and Canadian $24,027 a year for a couple, less 50% of any earned income. People with a disability get an additional amount of up to $500 per month. Canada has a per capita income of about $38,500, with Ontario suffering a higher poverty rate than the national average.
The Ontario scheme is set to be wound up by the end of March 2019. The province’s new Conservative government says it is expensive and unsustainable. The findings of the study will be eagerly studied. The recipients have said the money helped them to eat better, buy warm clothes for winter. Some of them also went back into the education system while others invested in businesses. All this is only anecdotal evidence, of course.
Kenya’s basic income scheme covers 14,474 families in 295 villages. While 44 villages are getting $0.75 per adult per day for 12 years, 80 villages will receive the same amount for two years. Another 71 villages got a one-time payment of around $500 per adult. The control group is 100 villages that do not receive any payments. This scheme is a work in progress. One finding is that people generally do not blow the cash on liquor or gamble it away. Kenya, with its per capita income of $1,170 and its rural-orientation, is much closer to India with its per capita of $1,963.
In light of all this, can a scheme like NYAY actually work in India? Well, let’s first see if the concept is popular enough to help the Congress win power.