Rahul Gandhi's minimum income guarantee scheme based on idea of Universal Basic Income: The concept and its feasibility

A Universal Basic Income scheme involves paying all citizens a certain monthly sum unconditionally, regardless of whether they work and how much they earn.

FP Staff January 29, 2019 12:03:07 IST
Rahul Gandhi's minimum income guarantee scheme based on idea of Universal Basic Income: The concept and its feasibility
  • Rahul Gandhi announced that Congress will implement a minimum income guarantee scheme if voted to power in the Lok Sabha elections

  • A Universal Basic Income scheme involves paying all citizens a certain monthly sum unconditionally, regardless of whether they work and how much they earn

  • A number of countries have tried experimenting with UBI schemes to check for its feasibility

  • The concept comes with a host of pros and cons, the primary fear being that such a free source of income may take away the incentive to find jobs

The Interim Budget the government will announce on 1 February is expected to be a populist one, one with a number of measures the administration believes will be pro-poor. Since the BJP's trashing in three Assembly elections — primarily due to the dissatisfaction of the farming community with the saffron government — observers have expected the BJP to fill the Budget with sops that will help them gain their favour back.

But Congress chief Rahul Gandhi beat them to the punch. At a rally in Chhattisgarh's Raipur on Monday, he announced that if the Congress was voted to power in the upcoming Lok Sabha elections, it will implement a minimum income guarantee scheme that will ensure that "there will be no hungry or poor people in India".

Soon after, former finance minister P Chidambaram said on Twitter that they had discussed the principle of Universal Basic Income (UBI) "extensively in the last two years", and that the Congress will explain its plan in more detail in its election manifesto.

In a nutshell, UBI involves paying all citizens a certain amount every month, regardless of whether they work, how much they earn and how they intend to spend the money. The scheme is meant to replace all existing social benefits, such as food and fuel subsidies. Advocates of UBI believe that the scheme can help eliminate poverty, make the welfare system more efficient and also stave off the threat of workers losing jobs to automation.

The idea of doing away with all subsidies to make way for UBI may not work in India if we take the population into consideration. BJP leader Gopal Krishna Agarwal, accusing Rahul of promising "the moon to the people", explained that when the party had examined the scheme in 2014, it had concluded that even after scrapping all subsidies, they would be able to pay only Rs 6,000 per family per month from the funds available, surely not enough to feed them all.

Rahul Gandhis minimum income guarantee scheme based on idea of Universal Basic Income The concept and its feasibility

Representational image. Reuters

However, both the Economic Survey 2017 and Economic Survey 2018 had highlighted the feasibility of implementing the welfare scheme to guarantee income to the poor in at least one or two states in the future.

Universal Basic Income experiments across the globe

The concept of UBI gained popularity in recent years. Although no country has implemented the policy in its entirety, a number of countries have experimented with the idea with a sample size to test its long-term sustainability.

Finland became the first European country to launch a pilot on the lines of a UBI scheme in January 2017. It picked a random sample of 2,000 unemployed people between 25 and 58 years and paid them €560 ($640) a month, with no requirement for employment. Even those with jobs received the same amount. Helsinki ended this programme in January 2018, which some say was too early to draw any meaningful conclusions.

The Canadian province of Ontario also ran a test project on UBI from 2017 to 2018. It was the first North American government in decades to test the scheme "touted as a panacea to poverty, bloated bureaucracy and the rise of precarious work". The pilot involved 4,000 participants between the ages of 18 and 64 years who lived on a low income in Hamilton, Thunder Bay and Lindsay. The C$150-million project was supposed to continue for three years, but was brought to an abrupt end after the elections in Ontario in June. The new government said the "broken programme" was "sustainable", though it did not back its claim with data.

Even in the United States, a number of cities took up the project to test out whether implementing UBI could be an option. The Alaska Permanent Fund is the closest example to a UBI in place today. Since 1982, it has been paying a partial basic income from state oil revenues to all permanent residents of the northernmost US state. Economists say its effects have been positive so far and that it may actually have led to a job growth in certain sectors, with some only opting for shorter work hours.

The Californian city of Stockton hopes to launch an experiment in 2019, with a plan to pay 100 of its poorest residents $500 a month unconditionally to ensure that no resident of the city lives in poverty. As is the idea of UBI, the recipients will be able to spend the money however they want without any rules or regulations.

Chicago, too, is mulling over introducing the program. It would make it the largest city in the US to introduce the policy.

Iran came on board the UBI train in 2011 with an experiment, which included monthly transfers of 29 percent of the median household income — around $1.50 extra per head of the household — every day.

Basic income pilots were also implemented in the Netherlands, France, Switzerland, New Zealand, Namibia, Germany and Scotland.

UBI test in India

India, too, had given the policy a shot in 2011-2012. The minimum income guarantee pilot funded by the UNICEF was tried out in a few villages of Madhya Pradesh. Two pilots were run simultaneously — one in eight villages and the other in two tribal villages.

Under the Madhya Pradesh Unconditional Cash Transfer, 6,000 people in eight villages were given cash for 12 to 17 months, while 12 similar villages were not included in the test scheme. Each adult received Rs 200 and each child received Rs 100 a month for a year, after which it was raised to Rs 300 and Rs 150, respectively.

Similarly, in the second pilot, residents of one tribal village received the cash transfer while the other did not. Adults in the former village got Rs 300 and children got Rs 150 per month.

Both pilots delivered positive results, which showed that the beneficiaries began to save more and use the cash given to them wisely. The recipients were found to be using the funds to improve their standard of living, by funding children's education, raising their household expenses, etc.

The pros and cons

Like every scheme, UBI comes with its positives and negatives.

The fear over granting free cash under the basic income scheme is that people could become complacent and not seek to find employment to supplement these funds available to them. While one of the ideas behind UBI is to counter automation, having money available to them unconditionally — one of the bases of the policy — could take away the incentive to work, as former chief economic adviser Arvind Subramanian said.

However, a study on the UBI experiment in Iran found that those who received cash transfers neither quit their jobs nor decrease their working hours, underlining the subjectivity of this argument.

An unconditional source of income could also allow recipients to wait it out for a better opportunity or negotiate higher salaries, and even improve their marketability by opting to study further — this was one of the biggest regrets expressed by beneficiaries of the trial scheme in Ontario after the provincial government ended the UBI experiment.

Moreover, research shows that cash transfer programmes like UBI are more efficient than providing a myriad of welfare scheme. Not only would they cut down bureaucracy, but they would also do away with the administrative costs of distributing goods. In this regard, the theory is that people are a better judge of their own needs, and such schemes would allow them to put the allocated money to use more efficiently.

Also, being a "universal" policy, it shields people from the societal stigma associated with need-based programmes that can bring some "undeserving" people under the poverty bracket.

On the other side, there's a risk of cash availability to all driving up inflation, as it would boost demand. Any shortfall in supply to meet this demand to could lead to price rise and bring us all back to square one. A primary aim of a UBI scheme is to eliminate poverty and improve people's standard of living, and such induced inflation would negate the whole idea of the policy.

Also, if an administration implements a UBI programme, but does not allocate (unemployed) recipients an amount deemed sufficient to meet expenses, it would be moot.

"The poor of India have the first charge on the resources of the country," Chidambaram tweeted after Rahul's announcement in Chhattisgarh. But as mentioned above, there are several other criteria — both state- and country-specific — that need consideration to check for feasibility before a UBI scheme, or a minimum income guarantee scheme as Rahul put it, can be implemented.

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