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The title ‘free money’ invokes a sense of paradox and a state of utopia. The economic systems so developed in the world have become increasingly consumeristic, and the idea of ‘free money’ seems like just another gimmick to woo the consumers into buying something they would regret later. This article will shed light on why grants of money with no strings attached is plausible and very real. Essentially UBI is a basic amount of money given to everyone irrespective of their social status with no contingencies, quite contrary to the current social welfare programs in place. It has three features: unconditionality, universality, and agency.

 The ‘free money’ concept is more commonly known as Universal Basic Income (UBI), or cash grants, development grants, etc. Universal Basic Income, when it was introduced in the 20th century received much criticism and public outrage. As we moved away from civil and political rights in the 20th century to socio-economic rights in the 21st, the idea of UBI has attained a sense of acceptance, albeit not widespread. The concept has been the cause of numerous debates worldwide, from economists and politicians on both sides of the spectrum.

The amount of money so arrived at would be enough to provide a basic insurance against shocks and risks, and at the same time will not affect the worker’s productivity. The allegations that people work for the sake of work have been proven to be false. Similarly, the contention that workers become lazy and indulge in leisure after a certain wage level has been found to be incorrect as well[1]. Along the same lines, the proposition that there exists a moral hazard in giving people unconditional money has been proven false, as we will see later in the course of the article.

The development of UBI has seen quite a long journey.  From combining the advantages of socialism and anarchism to provide for some basic necessities as was touted by Bertrand Russel[2], to the inevitability of UBI due to automation as endorsed by Elon Musk[3], the reasons for UBI have been quite diverse. Though it has been around for a long time, the prospects for UBI have never looked brighter.

For a long time, people have been apprehensive about machines taking away jobs. The debate around that has never been as heated as it is now. The advent of AI (artificial intelligence) and a breakneck progress in technology has substituted labor in many forms.

 

Experiments with UBI

 

only in theory. It has been experimented on the ground level in many countries, including India. Let us take the case of Kenya first. In Rarieda, Kenya, the researchers conducted an unconditional cash transfer among 126 poorest villages. Among them, 63 were given the unconditional cash transfer, and the other 63 were used for comparison. They were chosen at random. The study found out that the consumption of the households increased on education, food, and medicines. The study also showed a significant decrease in stress levels and depression thereby enhancing their psychological well-being[5].

A similar experiment is being carried out in Finland. Starting from Jan 2017 the Finish Social Insurance Institute is giving unconditional cash transfers to two thousand unemployed citizens in Finland amounting to 560 Euros every month. The size of the program has been set at two years. The program has had good results, especially in tackling the unemployment problem in the country. Earlier, on unemployment benefits, if an unemployed did get a job, the benefits were taken away. Thus, there was a disincentive to work[6]. On the other hand, the unconditional cash transfer is not being taken away even if one finds a job. Therefore, it not only serves as a cushion against the various shocks that a household/individual faces, but it provides a fillip to the ones seeking employment.

UBI has also had a good standing in India. The discussion on UBI attracted a lot of steam after it was taken up as a separate chapter in the Economic Survey of 16-17. Prelude to this, there have been experimental trials in India in the villages of Madhya Pradesh.

The SEWA organization conducted the Madhya Pradesh trials in partnership with UNICEF. Twenty villages and two tribal villages were taken as a sample. Eight villages and one tribal village were given unconditional cash transfers, the other twelve villages and one tribal village were taken as a comparison study. For 18 months, about 6,000 individuals were given cash grants amounting to 200 rupees as an adult and 100 rupees for a child.  Since this was a trial, the amount provided was not much. Although, it did have wide spread ramifications. Note here that the striking feature is that every household was not provided with a monthly sum, rather it was every individual. This particular feature was instrumental in providing women greater autonomy in deciding the expenditure of resources of the household.

The findings of the study were quite significant. The intention of the study was never to find a substitute for the existing welfare schemes such as the PDS, or MNREGA, though it does have certain ramifications to them as well. Some important findings of the study have been listed below:

  • There was an increase in financial inclusion, with majority opening a bank account to facilitate the cash transfers.
  • Households which received the grant were more than likely to improve upon their dwellings. They used the amount to strengthen their roofs and walls. There were instances of improvement in latrines as well.
  • Profound improvement in food security was also witnessed. Households receiving the grants were more inclined to have a varied diet, and increase the food sufficiency in the household. The weight-to-age ratio also saw a rise, especially among young girls.
  • The cash grants also led to an increase in healthcare spending. There was a shift to private hospitals from the government public health care centers. The households also reported regular intake of medicines. This was noticeable, especially in the tribal villages.
  • In spite of the largely arrived consensus that cash grants would induce laziness, the households reported an increase in self-employment, in small-scale businesses or farming.
  • In the case of tribal villages, the household who received the cash grants were likely to spend it on higher quality seeds, fertilizers, and pesticides.
  • According to the study, only a minority out of the twenty villages had a below poverty line card or an Antyodya Additionally, only 14% of the households had availed from the MGNREA[7].

 

 

 

Welfare Schemes and UBI

 

One of the primary questions about UBI has always been whether it could replace the current welfare schemes. The present welfare schemes in India treat their beneficiaries as subjects. On the contrary, UBI treats its beneficiaries as agents. It gives the individuals greater autonomy in taking their own economic decisions. DBTs or Direct Benefit Transfers is probably the closest thing that India has to UBI currently. The JAM trinity (Jan Dhan, Aadhar, and Mobile) can go a long way in facilitating financial inclusion and cash transfers to the individual’s account.

The current welfare schemes such as PDS and MNREGA have had a history of poor targeting. The allocation of state funds to the 40% of the poorest districts in the country have been regressive and inefficient. The allocation of the state funds to the 40% of the poorest districts is lower than 40% for schemes like MNREGA, Sarva Shiksha Abhiyan, Pradhan Mantri Awas Yojana, etc. Moreover, the allocation is less than 25% for Swach Bharat Abhiyan and Mid-Day Meal[8].

India has had a long history of poor identification of beneficiaries. From having self-reported income serving as a benchmark in 1992 to the socio-economic caste census in 2011, the targeting of welfare programs in India has been fraught with problems, especially having large scale leakages to the rich. Such a poor targeting record makes the prospects of a targeted unconditional basic income fallible. Such error prone targeting has even compelled Tamil Nadu and Chattisgarh to enact universalized access to PDS.

In such a scenario of misallocation of assets and leakages to the rich, the impact of these schemes is questionable. However, one cannot discard these schemes fully. The PDS and MNREGA have shown considerable success over time. At the time of its inception, the average completed works were numbered at 25-30 lakhs, which has risen to 48 lakhs[9]. Leakages in the PDS have reduced from 54% to 34.6% from 2004 to 2011[10].

 

Shortcomings of UBI

 

One problem with the UBI is the unavailability of the source of funds. Studies suggest that if UBI is to be enacted in India, it will amount to 5% of the GDP[11], although other studies have shown it to be much higher if inflation is to be adjusted. At this juncture, India is in no position to afford UBI if the estimates are correct. A revenue deficit coupled with a fiscal deficit target of 3-6% (FRBM act) makes it even more challenging. The only way the government could ever think of financing this is to raise taxes and increase the deficit, thus not adhering to the FRBM act or to replace the current welfare schemes with UBI, essentially diverting the funds from the quantum of schemes to a single one. Both of them seem highly unlikely, the former for economic reasons and the latter for political reasons. Any government trying to scrap the schemes such as PDS or MNREGA would be equivalent to committing political suicide.

The third alternative as suggested by the former Greek Finance Minister Yannis Varoufakis is to finance it from the share of society’s capital, and not from taxation. According to him, the proposition that wealth is produced individually is a myth propogated by the rich. Since wealth in the society is always produced collectively, UBI must be financed through a share of society’s capital[12]. If such a thing were to come into force with the consent of all parties concerned, it could mitigate the ‘free rider’ problem, which exists with today’s public goods. Taxing someone’s income so that someone else can remain unemployed and earn benefits is not the appropriate way to fund UBI.

Conclusion

The fear of the rise of machines is probably more profound in the 21st century than it ever has been, making everyone reminisce the Luddites. One thing is certain, taking cue from the luddites and having a regressive view of the machines makes us look timid. Shying away from technology is not the correct course of action. At the same time, embracing technology and not having plans in place to cushion the risks is equally foolish. UBI might very well be one of those cushions.

With the amount of economic and political constraints UBI faces, it might not be the right time to enact it. However, the lightning progress in technology and the loss of traditional employment mechanisms does make it a right time to at least have a discourse over it.

References 

[1]Economic Survey (16-17), ‘Universal Basic Income: A conversation with and within the Mahatma’, Pg. 184.

[2] http://basicincome.org/basic-income/history/

[3] http://www.businessinsider.in/Elon-Musk-doubles-down-on-universal-basic-income-Its-going-to-be-necessary/articleshow/57134236.cms

[4] http://www.thehindu.com/business/Industry/Automation-threatens-69-jobs-in-India-World-Bank/article15427005.ece

[5] J. Haushofer and J. Shapiro (2016), ‘The short-term impact of unconditional cash transfers to the poor’: Experimental evidence from Kenya,’ Quarterly Journal of Economics, July.

[6] http://www.independent.co.uk/news/business/news/finland-universal-basic-income-lower-stress-better-motivation-work-wages-salary-a7800741.html

[7] http://sewabharat.org/wp-content/uploads/2015/07/Report-on-Unconditional-Cash-Transfer-Pilot-Project-in-Madhya-Pradesh.pdf

[8]Ibid 1, p. 179.

[9] Ibid 1, p. 181.

[10] Himanshu and Sen (2013), ‘In kind food transfers- I’, ‘Economic and Political Weekly’, 48 (45 and 46), 46-54

[11]Ibid 4, p. 188.

[12] https://www.project-syndicate.org/commentary/basic-income-funded-by-capital-income-by-yanis-varoufakis-2016-10

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Written By Abhijeet Deshmukh

B.A Economics, aspiring civil servant, Young Bhartiya Core Team Member.

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