21 February 2019
Basic income: The idea and Indian experiments
Source: By Sarath Davala: The Financial Express
Universal Basic Income (UBI) in its pure form implies six essential ingredients. It is universal, individual, cash, monthly, unconditional and lastly it is a right that cannot be withdrawn. As a full-fledged social policy, it has not been implemented anywhere in the world yet. In the last decade, suddenly there has been an explosion of interest in the idea—in the universities, mainstream media and policy corridors. Political philosopher Karl Widerquist of Georgetown University calls the current wave of enthusiasm and activism as the third wave. The first wave was between 1910 and 1940 and the second one in the 1960s and 1970s, he observes. While the earlier waves had been sporadic, the current one seems to be the longest one.
By ‘universal’, we mean that all residents of a particular territory of a nation state are entitled to a basic income simply by virtue of being a resident of the territory. Being universal has two important advantages. One is administrative efficiency. Income transfer bypasses all the limitations posed by the errors of targeting. In India particularly, we have not been able to resolve the question of targeting. Most of our welfare programmes suffer from both inclusion and exclusion errors. The second advantage is called the ‘solidarity effect’. By giving everyone, UBI ceases to be a welfare scheme or a subsidy and all the stigma, paternalism and disapproval that are attached to it. Pragmatic questions remain whether we can afford it, but we will come to that later.
By ‘individual’, we mean that every single individual—adult or child—is entitled to a UBI, as opposed to giving it to the household. This aspect of UBI accords economic citizenship to each and every individual and this is said to have the ‘empowerment effect’. Individuals are empowered because entitlement to UBI provides individuals a sense of worth and protects individual freedom. On the contrary, if UBI is given to the household, a woman who is living in a violent marriage would be forced to continue in it just to have basic income security.
By ‘cash only’, we mean that it should not be in-kind transfers. It should be cash only, and should be delivered efficiently to the individuals and ought to be leak-proof. Today’s technology allows this kind of direct transfer.
By ‘monthly’, we mean that UBI should be given every month so that people have a regular, predictable and reliable income stream. This has strong implications for the rate of time preference of the poor. In general, the rate of time preference of the poor households is very high, which means that they tend to focus on the present rather than on the future. In other words, what they earn they are forced to consume in the present rather than have any kind of future orientation in terms of savings or investment in human capital. When they experience a regular income stream, this changes substantially, and they tend to develop a future orientation—which means that they begin to balance their current consumption and investments for the future.
By ‘unconditional’ we mean that there should be no conditions whatsoever—ex ante or ex post. That is, neither condition related to eligibility to receive neither basic income (age, gender, income level, etc) nor conditions related to demonstrating specific behavioural compliance or an output (school attendance, number of vaccinations taken, repayment of loans, etc). In general, most welfare programmes in India are conditional in nature and their continuation is controlled and regulated by a vigilant welfare bureaucracy. Conditions are paternalistic and humiliating, and they challenge the potential recipients to prove that they deserve the support.
By ‘right’, we mean that basic income ought to be given to people as a matter of right and not a scheme that can be withdrawn at any time or given as a temporary relief to cope with a calamity.
Theoretically, the efficacy of UBI is discussed assuming it is implemented with all the above characteristics. It is in this combination that UBI gains the potential power:
- To provide a sense of security to individuals and households;
- To raise the floor and provide all the members of the society a ground to stand on—and then build their lives on that foundation navigating through the vagaries of market forces;
- To enable individuals to possess the freedom to say ‘no’ to certain things, and equally to say ‘yes’ to certain other things in their lives.
In India, the Self Employed Women’s Association (SEWA) with the support of the UNICEF had conducted two experiments in Madhya Pradesh between 2011 and 2013. The first experiment was done in eight regular villages and the second in a tribal village. These experiments strictly adhered to the model described above. The transfers were:
- ‘Universal’ within the village, which means all the residents of the village—rich and poor—received the basic income;
- The entitlement was ‘individual’;
- ‘Cash’ was either transferred to a bank account or, in the case of the tribal village, given directly to individuals;
- It was given to them ‘every month’;
- It was completely ‘unconditional’; and finally,
- It was a ‘right’ since everyone was entitled to the basic income for the entire duration of the experiment, and even when a child was born during the experiment he/she was automatically added to the list of recipients.
In regular villages, each adult was paid `200 per month for 12 months, which was increased to Rs300 when the transfers were extended by five more months. In the tribal village, each adult was paid Rs 300 for a period of 12 months. Children were paid half of that amount and money was transferred to their mothers’ accounts.
The results of the experiment were extremely positive. Food sufficiency improved, small and marginal farmers spent more time on their farms and the result was that more land was brought under cultivation and agricultural production has increased, livestock nearly doubled, women started new enterprises, for smaller borrowings people moved away from the moneylenders to neighbours and relatives, and some people shifted away from more exploitative forms of employment to less exploitative ones. The liquidity that people enjoyed during the experiment empowered them and enabled them to make choices that turned out to be positive and emancipatory.
These positive results, it seems to me, can be primarily attributed to a gestalt effect caused by a convergence of different elements of the experiment rather than because of the simple act of injecting cash into the household. The overall effect of a regular basic income was truly transformative. The emancipatory value, it appears, was several times greater than the monetary value of the transfers both because of the convergence of the design elements and also cumulative effect over time.