India should replace its mess of welfare schemes with a single payment.
Government revenue as of % of GDP; 2014 or the latest
- 15.50% High income countries
- 12.25% Middle income countries
- 12.50% Low income countries
- 11.00% India
One of the many indignities associated with being poor in India is navigating the country’s thicket of welfare programmes. The central government alone runs 950 of them; the states operate many more on top. Some are big, like those doling out subsidised food and fertiliser. Many are little more than an excuse for government ministers to stage a photo-op.
The Indian government this week floated the idea of replacing most of these schemes with a “universal basic income” (UBI), an unconditional cash payment that could be disbursed not just to the poor but to everyone. In rich countries, the UBI is raised as a possible response to a world where artificial intelligence and automation put large numbers of people out of a job. But unless technology destroys jobs on an unprecedented scale and creates none in their place, the case for such a scheme is premature. Functional social-safety nets and instruments such as tax credits make it possible to direct money to the needy in these countries. In India, despite its practical difficulties, the idea has a different logic and deserves a more sympathetic hearing.
For one, a little money would go a long way for India’s poor. Over a fifth of its population lives below the poverty line. The scheme outlined this week by the chief economic adviser to the Indian government, Arvind Subramanian, would cut that figure to less than 0.5% by transferring about $9 a month to all adult Indians. If doled out to everyone, that would cost around 6-7% of GDP; the 950 welfare schemes soak up 5% of GDP.
Giving people cash would be far better than today’s system of handing out welfare in kind. The plethora of schemes in place for Indians to claim subsidised food, fuel, gas, electricity and so on are inefficient and corrupt. Beneficiaries are at the mercy of venal officials who can lean on them to accept less than they are entitled to. Payments in kind rest on the paternalistic assumption that poor Indians are incapable of making rational spending decisions. A small trial in the state of Madhya Pradesh debunked the notion that a UBI would be frittered away on booze and gambling.
The idea of including India’s plutocrats in the handout sticks in the craw. The government’s paper on UBI is itself unsure about the “universal” bit of it, suggesting that a quarter of the population should somehow be excluded to make the scheme more affordable. But gauging who is poor and who isn’t has repeatedly proved beyond the capacity of the Indian authorities. Over 35% of the richest 1% of Indians benefit from subsidised food to which they are not entitled. Worse, 27% of the poorest fifth of the population are denied their due.
Questions of affordability would loom less large if the Indian authorities collected more tax: central-government revenues are a measly 11% or so of GDP. And a universal benefit may operate better if the sharp-elbowed middle class had a stake in making sure it runs well.
Miss the robot
Even fans of the idea accept that there are practical problems. Crediting cash to the bank accounts of hundreds of millions of Indians is technically feasible thanks to Aadhaar, a digital- identification scheme that covers 99% of adults. But in the absence of a dense banking network, especially in rural areas, many poor Indians might struggle to gain access to the money. The capacity of India’s state to manage the transition to a single welfare payment is also questionable, to put it kindly. There is a real risk that a UBI would supplement welfare programmes, rather than replace them. These are all reasons not to leap blindly towards it. But as a way of helping the world’s poorest people, the case for a UBI is strong.
The Economist – Europe