Tackling Poverty: Could Universal Basic Income Solve India’s Problem?

February 15, 2017

By Mandakini Devasher Surie

The recently released Economic Survey of India—a status report on economic development in the country prepared annually by the Ministry of Finance—proposes a radical idea that has caused a stir in public policy circles. The idea is a simple one—a Universal Basic Income—to provide every individual in the country with a basic and guaranteed minimum wage from the government. The survey proposes that the UBI could replace the myriad of social welfare schemes implemented by the government and address issues of poverty and underdevelopment. While the proposal has its share of believers and naysayers, the reality of poverty in India and the need for creative solutions is hard to ignore.

According to the World Bank, India is home to nearly one-third of the world’s poor, despite strong economic growth. Photo/Conor Ashleigh

When India gained independence in 1947, it was one of the poorest countries in the world with a per capita GDP of an estimated $617. Since then, the country has made remarkable strides, achieving annual growth rates of 6-7 percent and a per capita GDP of $6,530, bringing the country on par with many developed economies in Europe and Asia. While millions have been lifted out of poverty, traveling through India’s villages, towns, and cities, it is an inescapable truth that poverty remains a core socio-economic and development challenge, and one that successive governments have struggled to tackle effectively.

According to the World Bank, India is home to nearly one-third of the world’s poor, or 400 million people. Inequality in incomes, access to services, and basic entitlements is equally a challenge. An estimated top 1 percent of India’s population owns roughly 60 percent of the country’s wealth—making India the second most unequal country in the world after Russia. On key human development indicators, such as health, nutrition, education, sanitation, and access to drinking water, India punches far below its economic weight. Neighboring countries Nepal, Bangladesh, and Sri Lanka, which have lower per capita GDPs, have fared much better in terms of addressing issues of maternal mortality, hunger, and malnutrition.

Traditionally, the Indian government has tackled poverty and underdevelopment through a series of targeted social welfare programs financed by the central government and implemented through the federal/state machinery. The Economic Survey estimates that the central government alone currently runs some 950 social welfare schemes that cumulatively cost about 5 percent of India’s annual GDP. These programs range from the national rural employment guarantee scheme that provides subsidized food grains to households and the integrated child development services that provide pre-school education, and healthcare to children below the age of six, to the Clean India program aimed at improving sanitation. While, billions of rupees are allocated annually toward running these programs, a number of research studies have suggested that they often fall short in actually delivering social welfare benefits to the poor.

In the 1980s, former Indian Prime Minister Rajiv Gandhi famously said that for every rupee released by the central government to the poor, only about a fraction ever made it into their pockets. In large parts of India, particularly at the local level, this reality remains true. It is what makes the idea of a Universal Basic Income so alluring, as it would potentially bypass problems of beneficiary identification, curb leakages in the system, and thwart corruption by putting money directly into the hands of people. But critics of the proposal have been quick to point out that the UBI misses the woods for the trees by failing to address a fundamental reality in India today—the lack of state capacity to deliver social goods effectively and efficiently.

The Economic Survey overlays a map of the poorest districts in India with another map that illustrates district-wise social sector expenditure across the country to find a near complete match. In a nutshell, districts that have the highest levels of poverty are also the ones that are getting a smaller share of state resources, indicating that across many states, social welfare funds are being misallocated. This is not surprising, since funds are typically allotted based on how effectively a district is able to spend its budget. Poorer districts lack the administrative capacity necessary to effectively implement and spend their social welfare budgets, leading to resources being allocated to richer and more capable districts. This results in a vicious cycle where poor districts remain poor because of the lack of resource investments.

At the crux of the problem is the issue of state capacity. Across large parts of India, the government’s ability to deliver benefits and entitlements at a village, district, and city level has been undermined by the lack of investment in funds, finances, and human resources. India has one of the lowest government employee-to-population ratios in the world, even as the methods and procedures of program delivery, particularly at a local level, remain unreformed. While efforts were made to decentralize authority to urban and rural local governments in the 1990s, these reforms have been stymied by the failure to devolve adequate funds and resources. The lack of decentralization of authority, funds, and resources to local governments has in many instances affected the performance of social welfare programs that are intended to be implemented by these agencies.

Since the BJP-led government under Prime Minister Narendra Modi was elected in 2015, it has implemented several big bang reforms in key areas such as finance, trade, investment, and energy, as well as a slew of social welfare programs. In acknowledgement of the leaky implementation of many social welfare programs, the government has championed the idea of direct benefit transfers to beneficiaries through the linking of bank accounts with unique identification numbers (UID or Aadhar cards) and mobile phones. The Jan-Dhan, Aadhar, and Mobile (JAM) trinity as it is known is expected to curb problems of beneficiary identification and reduce corruption and leakages. The UBI is potentially the next step in this effort.

However, even as the government mulls technological solutions to address old problems, the fundamental fact remains that there is a direct correlation between a state’s capacity to deliver services and the impact it can have on addressing issues of poverty and development. Consequently, to be successful such programs will require equal investments in people and processes. The Economic Survey acknowledges that at the end of the day the “UBI is not a substitute for state capacity” and merely offers a potentially more efficient means of transferring welfare benefits. At the end of the day, until efforts are made to address some of the structural impediments to the way that governments function on the ground through comprehensive administrative reforms and decentralization, these programs will always run the risk falling short.

Mandakini Devasher Surie is The Asia Foundation’s senior program officer in India. She tweets @mdevasher. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation or its funders.

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