February 9, 2017 12:30 am JST

India mulls universal basic income in the war on poverty

Asia's third-largest economy studies simple but radical alternative to subsidies

KIRAN SHARMA, Nikkei staff writer

India is studying the concept of universal basic income to eradicate poverty. (Photo by Kiran Sharma)

NEW DELHI -- With nearly 300 million people in a population of 1.3 billion continuing to live in extreme poverty, India is considering giving a small fixed income to its citizens each month in lieu of the current plethora of subsidies and social welfare schemes.

A finance ministry annual survey released ahead of the annual budget last week featured a chapter on universal basic income (UBI), a concept "whose time has come perhaps not for immediate implementation but at least for serious public deliberation."

Authored by Chief Economic Adviser Arvind Subramanian, the survey calculates that annual UBI of 7,620 rupees ($113) per person would raise almost all poor Indians above the poverty line of 893 rupees a month. That figure is based on prices from 2011-2012 adjusted for inflation.   

India's poverty rate when 200 years of British rule came to an end in 1947 was put at 70% of the population, and this had been reduced to 22% four to five years ago. A United Nations' report on India's Millennium Development Goals released in 2015 said: "Nearly 300 million people live in extreme poverty in India and face deprivation in terms of access to basic services, including education, health, water, sanitation and electricity."

Assuming UBI for only 75% of population, the survey estimated the cost at 4.9% of gross domestic product -- a relatively light burden that could be met by scrapping existing subsidies. At present, the middle-classes receive subsidies on cooking gas and rail travel, and personal income tax exemptions that amount to 1.05% of GDP. Subsidies to the poor on fuel, food, and fertilizer cost 2.07% of GDP.

The survey invoked Mahatma Gandhi's vision of "wiping every tear from every eye" to make the UBI case, although it refers to his stated opposition to a free meal for a physically able person who has not worked for it honestly.

"The Mahatma would have been conflicted by the idea [of UBI] but, on balance, might have endorsed it," the survey said.

UBI is a radical attempt to guarantee sufficient income to cover basic needs and alleviate poverty. It has been studied globally, but is of particular interest in India which runs nearly 1,000 welfare schemes. Among measures undertaken there against poverty are a program guaranteeing at least 100 days of employment a year to households in rural areas; a food security scheme covering up to 75% of the rural and 50% of the urban population; and a housing project for the poor.

Though meant to promote social justice, the schemes have run for decades, involve complex bureaucratic layers, and are plagued by allegations of corruption. With inbuilt inefficiencies, the programs often fail to reach the poorest and neediest. UBI would see a monthly sum transferred to bank accounts to replace administered subsidies.

Elected in 2014, Prime Minister Narendra Modi promised a citizen-friendly and accountable administration, and has exhorted bureaucrats to become "agents of change." In the 21st century, he said, civil servants must reinvent themselves, and move beyond traditional roles in control, regulation, and management for national betterment.

Finance Minister Arun Jaitley told CNBC's Indian affiliate on Monday that UBI is a futuristic concept requiring consensus between the central and state governments.

"It is a thought world-over that a minimum income be given to 30-35% very poor citizens every month in a country in place of untargeted subsidies by the government," Jaitley told the TV channel. "The help offered by the government will complement any income earned by the poor."

Last month, Arvind Panagariya, vice chairman of the National Institution for Transforming India, a public policy think tank, told the Indian Express newspaper: "At the current level of income and our needs for investment in health, education, infrastructure and defense, we simply do not have the necessary fiscal resources to transfer a reasonable basic income to 1.3 billion Indians." 

Meanwhile, the State Bank of India economic research team noted the annual survey's consideration of UBI. "UBI that reduces poverty to 0.5% would cost between 4-5% of GDP," it said.  

"Though it is difficult to scrap the complete subsidy bill of 2.5 trillion rupees, if we assume a decline of 50%, then the total fiscal burden of UBI plus subsidy would be around 4.5 trillion rupees," it said. 

The SBI research noted UBI's potential to address misallocation of resources, but said "it is not the right time to implement it."

The Federation of Indian Chambers of Commerce and Industry said that alongside social security, there must be equal emphasis on job creation and "all our public policies must be geared towards this objective."

Finland last month launched a two-year UBI pilot scheme that pays 2,000 jobless citizens basic monthly income of 560 euros ($597) in an effort to tackle poverty and unemployment. The unconditional amount replaces existing social benefits and is paid even if the beneficiary finds employment.

The U.K. offers an allowance for job seekers of up to 73 pounds ($90.4) a week, but it carries strict conditions to encourage citizens to find work as soon as possible. Separately, the Scottish government has expressed interest in UBI to fight poverty and inequality. Swiss voters meanwhile overwhelmingly rejected a UBI proposal that was put to referendum last year.

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

Subscribe today to read the full story
- three months for
just $9

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

Subscribe today to read the full story
- three months for
just $9

Once subscribed, you can…

  • Read all stories with unlimited access (5 articles per month without subscription)
  • Use our smartphone and tablet apps

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.