How Universal Basic Income (UBI) can transform rural India

Economic development is often accompanied by investments in fields that are suitable to a small percentage of the working population. Despite falling victim to the continuing atrocity of inequality, India seems ready to execute a universal basic income (UBI) plan that would render poverty a problem of the past.

With the rapid succession of technological advancements in the 21st century, economic and political spheres in India have run amok trying to figure out the most practical and efficient approach to solving the welfare system. Despite the challenges accompanied with transforming an ailing, outdated social security system, it is imperative India take the first step in addressing the problems of inequality.

India’s technological advancements are responsible for the country’s transgression to a developing economy, in which a sector of the population have experienced better living standards, growing wages and improved housing.

The economic policies implemented by Prime Minster Modi have facilitated a growing economy, as a percentage of the country’s 1.3 billion people continue to be introduced to different ideas and jobs due to globalization, despite roughly 377 million or 29% of the population remaining below the poverty line.

Economic development is often accompanied by the growing concern of isolating citizens through investments in fields that are suitable to a small percentage of the working population.

Despite falling victim to the continuing atrocity of inequality that often accompanies newly developing countries, India seems ready to execute a universal basic income (UBI) plan that would render poverty a problem of the past.

Universal basic income (UBI), a form of social security that provides financial support from the government to all residents of a country or region, has been proposed as an alternative to the dated and complicated welfare and subsidy system embedded in developed and developing countries such as India.

UBI has been a utopian idea for liberal economist and politicians for generations and has recently gained traction among politicians as a pragmatic solution to poverty and job displacement.

Guaranteeing all citizens enough income to cover their basic needs, would, in theory, promote social justice and empower the beneficiaries to make their own economic choices. Such empowerment may be responsible for the diminishing of inequality, which would in turn lead to a more inclusive economy.

The UBI Proposal has five pillars that would ensure that the Indian government covers the basic needs of their citizens. The proposal, which has been praised by technological icons such as Elon Musk, Sam Altman and Chris Hughes, has five pillars that would ensure that government covers the basic needs of their citizens.

1. Periodic: Government endowment to citizens in regular intervals (every month/year), not as a  one off grant;

2. Cash Payment: Paid in an appropriate medium of exchange allowing those who receive it to decide what they want to spend it on (not paid vouchers for a particular use);

3. Individual: Paid on an individual basis. Not, for instance, to households.

4. Universal: Paid to unemployed and employed, without means of a test.

5. Unconditional: Paid without a requirement to work or demonstrating a willingness to work.

The incentive behind a substantial universal payout would be the elimination of households living below the poverty line, granting everyone a base level of income security; one that the current social security system fails to do. Because of an embedded sense of financial security, the India’s poorest people – who didn’t have the capacity to appropriate or invest money prior to this proposal – will be able to invest in themselves and their businesses which will only lead to an explosion in creativity, entrepreneurship and research.

The Indian government’s expenses on public social security are far from efficient. Under President Modi, modest social security expenditures attempts to aid the impoverished 29% of their population through several social pensions, including subsidies for water, fertilizer and food. India’s expense on their welfare systems are essentially wasted as nearly 36% of subsidies never make it to a non-poor household, rendering the distribution system incapable of dealing with the increasing demand for basic essentials.

The government has noted the problem in their social security system and has acted by proposing an alternative strategy on how to help the country’s poor in a more efficient fashion.

Arvin Subramanian, chief economic advisor in the Indian government, proposed an alternative which would replace the 950 existing welfare programs with monthly comprehensive cash payments. By recycling funds from the existing subsidy programs (food, water, fertilizer) – 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 their biometric identification card (Aadhaar), which over 1.3 billion Indians have.

Subramanian’s proposal comes amid the competition of several pilot projects across low and middle income parts of India, most notably the undertaking in Madhya Pradesh in June 2011 – November 2012.

The proposal provided universal, unconditional grants to every adult and child in selected villages, which included a cash transfer of $4.40 USD for each adult and $2.20 USD for every child on a monthly basis. Pilot projects provide statistical evidence to what the results could be in a micro scale, as the outcomes show a correlation between UBI and a better living standards among the poor.

By providing unconditional grants to every man, woman and child, mobile ownership increased from 9%-61%; consumption of vegetables increased 888%; 73% of recipient reduced their debt; the percentage of households with one bed went up from 35%-83%; the purchase of modes of transportation, such as scooters and bicycles, increased 27%; and most importantly, the 45% of people that claimed they didn’t have sufficient income to eat dropped to 19%. Accompanied with financial security and better nutrition, school attendance and performance improved, in addition to there being a shift from ration shops to markets, due to the increased financial liquidity made possible through the provided monthly grants.

Replacing India’s inefficient subsidy programs (food, water, fertilizer) with low-cost cash transfers serves as a bonafide alternative to the current welfare system. Empowering the poor to make decisions regarding their financial security will further expand their roles as Indian citizens as they will be partaking in the evolution of the economy through investments in their own homes, local markets, working conditions, schools and small shops.

Globalization and technological advancements have, and will continue to, displace workers in the poorest areas of the globe. Improvements of the welfare system could be a progressive solution in addressing the growing inequality and extreme poverty in rural India by providing financial security net for India’s most impoverished citizens.