By Tomas Penfold Perez
Economic and political spheres in India have run amok trying to figure out the most practical solution to the country's ailing social security system. India’s economic development has been accompanied by growing concerns about inequality; investments in fields such as medicine and technology have benefited only a small percentage of the working population. The rapid succession of technological and medical advancements in the last two decades continue to be responsible for the country’s passage into a developing economy, in which a portion of the population has experienced better living standards, growing wages, and improved housing.
The policies implemented by Prime Minister Narendra Modi have facilitated a growing economy that has—largely through globalization—introduced a sizable percentage of the country’s 1.3 billion people to different ideas and jobs. Despite these gains, roughly 377 million people (making up 29 percent of the population) remain below the poverty line.
India’s social security payments, which aid India’s poorest 40 percent, continue to be inefficient. President Modi’s public distribution system, which attempts to help the impoverished population through social pension subsidies on water, fertilizer, and food, continues to falter as the government estimates that nearly 36 percent of the subsidies never make it to any household. The government has noted the problems in their welfare system and has acted by proposing an alternative strategy to help the country’s poor in a more streamlined manner.
Arvind Subramanian, the chief economic advisor of the Indian government, has proposed an alternative that would replace the 950 existing welfare programs with comprehensive monthly cash payments. By recycling funds from the existing subsidy programs—which add up to roughly 5% of GDP—the government would be able to pay Indian citizens 7,620 rupees (113 USD) by diverting incoming payments to a bank account linked to each citizen's biometric identification card (Aadhaar), which over 1.3 billion Indians have. Despite falling victim to the continuing atrocity of inequality that often accompanies developing countries, India seems ready to execute a universal basic income (UBI) plan that would render poverty a problem of the past.
A form of social security that provides financial support from the government to all residents of a country or region, UBI has been proposed as a viable alternative to dated and complicated welfare and subsidy systems. UBI has been a utopian idea for liberal economists and politicians alike for generations and has only recently gained traction among politicians in Canada, Switzerland and India as a pragmatic solution to poverty and job displacement.
The incentive behind a substantial universal payout would be the elimination of households living below the poverty line. By granting everyone a base level of income security, the current social security system would be crucially improved upon. Because of an embedded sense of financial security, India’s poorest people—who have not had the ability to invest money prior to this proposal—will now possibly be able to invest in their own startups and businesses.
The UBI Proposal, which has been praised by technology icons such as Elon Musk and Sam Altman, has five pillars that would ensure that the Indian government covers the basic needs of their citizens.
Periodic: Government endowment to citizens in regular intervals (every month/year), not as a one-off grant.
Cash Payment: Paid in an appropriate medium of exchange that allows the recipients to decide what they want to spend it on (not paid vouchers for a particular use).
Individual: Paid on an individual basis. Not, for instance, to households.
Universal: Paid to unemployed and employed citizens, without means of a test.
Unconditional: Paid without a requirement to work or demonstration of a willingness to work.
Subramanian’s proposals come amid the completion of several pilot projects across low and middle income parts of India, most notably in Madhya Pradesh in June 2011-November 2012. The pilot projects are, in a sense, samples of a larger experiment as they provide statistical evidence showing the correlation between better living standards and UBI in low income parts of India. The project in Madhya Pradesh provided universal, unconditional grants to the people of selected villages. These grants included a cash transfer of 4.40 USD for every adult and of 2.20 USD for every child on a monthly basis.
By providing unconditional grants, mobile ownership increased from 9% to 61%, consumption of vegetables increased 888%, 73% of recipients reduced their debt, the percentage of households with one bed went up from 35% to 83%, the purchase of scooters and bicycles increased by 27%, and, most importantly, the 45% of people who claimed that they did not have enough money to eat dropped to 19%. Furthermore, in tandem with greater financial security and better nutrition, school attendance and performance improved.
Replacing India’s inefficient subsidy programs with low-cost cash transfers serves as a bona fide alternative to the current depleted welfare system. Empowering the poor to make financial decisions will further expand their role as citizens as they would be able to partake in the development of the country's economy through investment in their own homes, local markets, schools, and small businesses.
Globalization and technological advancements have, and will continue to displace workers in the poorest areas of the globe. By providing a financial security net for India’s most impoverished citizens, these improvements to India’s dated welfare system could be a progressive solution to the growing inequalities and extreme poverty in the rural part of the country.
Tomas Penfold Perez was a communications intern for the EastWest Institute. He is a Fordham University graduate who majored in International Political Economy and Communications & Media Industries.