Basic income India, universal basic income
Basic income India, universal basic incomeReuters

In December 2016, US-based Economic Security Project (ESP), co-chaired by future of work expert Natalie Foster, Facebook co-founder Chris Hughes and Roosevelt Institute Fellow Dorian Warren, pledged $10 million in initial project fund to explore how a 'basic income' could rebalance the economy and ensure economic opportunity for all.

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The move is just one in a series of such clamours around the world getting momentum over the concept of a universal basic income (UBI) for all.

On January 1, Finland became the first country in the world to pay a basic income to citizens on an experimental basis for two years wherein Finns randomly picked from across the country will receive an unconditional monthly tax-free basic income of 560 euros ($586).

Back in June 2016, Swiss voters had rejected a proposal to provide a universal basic income grant to all citizens after critics slammed that such an initiative will be detrimental to the economy as it would result in sky-high costs and people would quit their jobs in droves. "If you pay people to do nothing, they will do nothing," Charles Wyplosz, economics professor at the Geneva Graduate Institute, said.

Other better off countries like the Netherlands, Canada and New Zealand are also considering whether the basic income concept can actually be implemented on the ground.

A close look at the above examples makes it clear that all the countries either mulling or experimenting such a move are small in population and most of them are small in area as well. What if a country like India starts thinking about this? Will it be even worth considering, leave alone implementing?

Currently, India's social security system has a large number of schemes and programs that involve a variety of laws and regulations. The country has a large group of people working in the unorganised sector and hence are out of the ambit of several welfare schemes.

Over the last few years, several NGOs and other private organisations have conducted pilot projects on basic income in India.

According to Development Pathways, a UK-based group working for social protection across the developing world, India has a huge number of social protection schemes, including cash transfers, but many of which do little in making a difference in the lives of those living in poverty.

India's public distribution system (PDS) – which gives people living in poverty access to ration shops where they can buy basic goods such as grain and kerosene at a much lower price – uses a mechanism known as the 'Below Poverty Line (BPL)' list. This method is notorious for excluding many of those living in poverty and including many non-poor. Revealing how inefficient the PDS system is, the erstwhile Planning Commission in 2007 estimated that providing 1 rupee worth of food costs Rs 3.65 to administer. The Central government has brought a new National Food Security Act (NFSA), but this has still not been implemented as planned.

According to rough estimates, there are more than 1,000 different schemes at the central-level alone and hundreds more in each state. For example, in Madhya Pradesh alone, there are more than 300 such schemes.

A basic income would do away with the heavy administration cost of the PDS and, by abandoning the BPL targeting mechanism, exclusion errors and leakages would fall considerably. An unconditional and universal basic income could present an attractive option for making the system more effective.

A universal basic income providing every person aged 15 and above with Rs 300 ($4.36) per month and every child below 15 with Rs 150 ($2.18) would cost approximately 3.2 percent of India's GDP, Development Pathways highlighted in a report.

This will not at all put a burden on the economy comparing how other countries, including Brazil, are spending on social security. In fact, several middle-income countries have recently increased the proportion of GDP invested in public social security by more than three percentage points. Hence, 3.2 percent of GDP would be a very small price to pay for the transformation of rural India.

In the report, Development Pathways recommends that state governments should conduct expanded pilots in tribal villages. These villages are among the most deprived and vulnerable communities in India and the implementation of basic income during the pilot projects showed a particularly strong impact in the tribal villages.

At present, India spends only about 0.4 percent of its GDP on its social pension, on par with much poorer neighbour Nepal and far below the international levels.

If India were to universalise its pension to everybody aged 60 and above, the cost would correspond to:

• 0.6 percent of GDP at 500 rupees per month (about $7.50)
• 1.1 percent of GDP at 1,000 rupees per month (about $15)
• 2.2 percent of GDP at 2,000 rupees per month (about $30)

A pension of Rs 2,000 per month would bring India in line with the international norm that pensions should provide at least 20-33 percent of the general living standard.

The experience from other countries shows that pensions can have a very significant effect on poverty reduction. For example, in rural Brazil, pensions has brought about a 37 percent reduction in extreme poverty among the entire rural population.

All said, cash transfers may obviously not solve all the issues faced by the poor people, but it is amazing how much can be done simply by providing people with a small extra income on a regular and predictable basis.

Social protection policies, including income security, are not only considered fundamental human rights but are also believed to play a key role in boosting domestic demand, supporting national economies and fostering inclusive and sustainable growth. As the need for social income protection is getting increasingly recognised worldwide, the viability of a universal basic income still remains questionable as economies – irrespective of their size – battle fiscal consolidation in uncertain times.

Some statistics (source: International Labour Organization)

  1. Worldwide, 2.3 percent of GDP is allocated to public social protection expenditure. 
  2. Only 28 percent of the global labour force is potentially eligible for benefits (contributory or non-contributory). Within this, 80 percent of the labour force is so covered in Europe, 38 percent in Latin America, 21 percent in the Middle East, 17 percent in the Asia and Pacific region, and 8 percent in Africa. 
  3. Only 12 percent of unemployed workers worldwide actually receive unemployment benefits, with effective coverage ranging from 64 percent of unemployed workers in Western Europe to just over seven percent in the Asia and Pacific region, five percent in Latin America and the Caribbean and less than three percent in the Middle East and Africa.