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Gandhi's universal income pledge cannot end Indian poverty

Election promise strikes a chord but is doomed on cost and political grounds

| India
Poverty reduction should be a central but not the only issue.   © Reuters

Come election time, India's politicians are rarely shy about promising free money. Yet such giveaways have lately gained a sheen of intellectual respectability, following Rahul Gandhi's decision to clamber aboard the fashionable global movement for a Universal Basic Income.

In late March, the opposition Congress Party leader pledged a no-questions-asked annual payment of 72,000 rupees (roughly $1,000) per household to hundreds of millions of poorer Indians, were his party to prevail in upcoming elections. Sadly Gandhi's idea shares two problems with other mooted UBI experiments around the world, namely that it is almost certainly both fiscally and politically unworkable.

UBI has long been a solution in search of a problem. Silicon Valley whiz kids from Facebook's Mark Zuckerberg to Tesla's Elon Musk back it as an antidote to a future of job-killing automation. Libertarians are drawn to the fact that it could replace a host of other more complex government welfare schemes. Left-wingers view the payments more as a fundamental citizen right, or even possibly as a boon to human creativity.

The first thing that must be said about Gandhi's version, therefore, is that it is not really a universal basic income at all. Payments would go only to the one fifth of Indians who are considered poverty stricken, or around 50 million families. But even this would be expensive, costing in the region of 2% of gross domestic product.

That Gandhi's idea is taken seriously has much to do with Arvind Subramanian, who first floated something similar in 2017 as India's chief economic adviser. Subramanian now proposes a broader scheme giving 18,000 rupees ($260) per household to around three quarters of rural households, leaving out the most prosperous. Taken together he claims this would cost 1.3 percent of GDP, while bringing poverty down to nearly zero.

Others back different variants. Modi introduced a more modest subsidy for farmers this year, fearful of a looming rural electoral backlash. The International Monetary Fund suggests that a truly universal payment of 2,700 rupees ($39) could be introduced by ditching existing subsidies in areas like food and energy.

Gandhi's motivations are of course political. Promising freebies for disgruntled rural voters, who make up about two thirds of the electorate, remains his best hope of a surprise victory against Prime Minister Narendra Modi when voting begins on April 11. His proposal kicked off a predictable election-time furor last week.

Even so, income guarantee schemes could answer many genuine problems India faces. Absolute poverty levels have declined sharply over recent years, but tens of millions still live in destitution. Millions of struggling farmers face falling incomes after a run of poor harvests. The country's patchwork of corrupt, inefficient welfare programs do little to help.

Cash has numerous advantages over the wasteful in-kind benefits that dominate this existing safety net, with its various fuel subsidies and free food programs. Direct payments to farmers are certainly more efficient than the likely alternative, in which politicians arbitrarily cancel agricultural bank loans, a common populist move that helps better-off landowners but plays havoc with bank balance sheets.

That said, two decisive difficulties remain with the Congress plan. The first is targeting. Identifying the fifth of households eligible for payments would be fraught. Poorer Indians typically do not pay tax. Identifying welfare recipients is often left to the discretion of local power-brokers, hence why such schemes are riddled with graft. Being universal, a full UBI would avoid this problem. But then the Congress plan is not a full UBI.

Second, and most obviously, there is cost. Many minimum income advocates, including Subramanian, tend to suggest paying for their schemes by ditching other welfare programs, keeping the fiscal implications broadly neutral. Yet in India's rambunctious democracy the odds that politicians would actually be able to scrap a host of popular existing handouts to poorer voters are close to zero.

Mostly for this reason supporters of the Congress' plan have been hard to find. "We have done all the calculations, asked the best economists; they all backed us," Gandhi claimed last week. Yet Subramanian has already distanced himself from it. Former central bank governor Raghuram Rajan came out strongly against the idea of UBI in general in a recently-published book too.

In truth, UBI risks becoming a distraction from reforms that could make India's welfare system at once both more efficient and indeed more generous. Gradually replacing in-kind benefits like fuel or food subsidies with specific cash payments is part of the answer. But just as important are reforms to improve agricultural productivity, rural education provision, and job-creation in manufacturing industries, all of which offer more reliable routes out of poverty.

Gandhi still deserves credit. For years his Congress party has been close to an ideas-free zone. Now it is starting to show signs of intellectual renewal, even if its odds of winning the upcoming election are slim. But India badly needs welfare reform proposals that are not only innovative but both affordable and politically feasible. Gandhi's plan is neither.

There is a larger risk too. India's minimum income push has noble objectives. Poverty reduction should be a central issue in any Indian election. But it should not be the only issue. The country's last poll in 2014 helped to bring a range of complex national development challenges into focus, from the urgency of economic reform to the pressing need to battle corruption scandals. This time round it risks degenerating into little more than single-issue campaigns marked by clashing spending pledges.

The best that can be said of India's UBI debate is that its sense of optimism and possibility has something in common with other basic income experiments. But these have rarely ended well. One prominent trial in Finland began with aplomb in 2017, only to collapse last year later when research revealed it did little to boost employment. Another Canadian pilot was recently abandoned midway through. The lesson from both is similar. UBI looks enticingly radical on paper, but almost everywhere it has been tried it has failed. It would almost certainly fail in India too.

James Crabtree is an associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of "The Billionaire Raj."

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