India floats the idea of a universal basic income

NOVEMBER 8th was not just the day of Donald Trump’s election. It was also when Indians found out most banknotes would lose all value unless promptly exchanged. Ever since, many have expected their patience in enduring the ensuing chaos to be rewarded in some way. Might scrapped cash unredeemed by presumed tax-dodgers be recycled into a lump-sum payment to each and every citizen? Or would the annual budget, presented on February 1st, be full of giveaways ahead of a string of state elections? In the event, the budget was restrained to the point of dullness. But the government’s closely-watched “economic survey”, released the previous day, hinted at a much bigger giveaway in the works: a universal basic income (UBI) payable to every single Indian.

The idea of a cash payment made to citizens irrespective of their wealth is centuries old. It has become newly fashionable in some rich countries, among both left-wing thinkers (who like its redistributive aspects) and their right-wing foes (who think it results in a less meddlesome state). The idea has had its fans in India: a small UBI scheme was launched as a pilot in the state of Madhya Pradesh in 2010.

Its inclusion in the annual survey, a breeding ground for policies that was drafted by the government’s chief economic adviser, Arvind Subramanian, gives a new focus for fans of the measure (and its opponents). A UBI is usually discussed in abstract terms. There is now a proposed amount: 7,620 rupees ($113) a year. Equivalent to less than a month’s pay at the minimum wage in a city, it is well short of what anyone might need to lead a life of leisure. But it would cut absolute poverty from 22% to less than 0.5%.

Mr Subramanian also provides an outline of how it would be paid for. Crucially, the money would largely come from recycling funds from around 950 existing welfare schemes, including those that offer subsidised food, water, fertiliser and much else besides. Altogether these add up to roughly the 5% of GDP he thinks his version of UBI would cost. Starting such a programme from scratch would take up around half the central government’s annual budget, such is the pitiful state of direct-tax collection in India.

The pros of UBI are clear: India is keen in theory to help its poor, but not very good at it in practice. Much of its welfare subsidies ends up in the hands of the relatively rich, who are more likely to make use of air-conditioned trains or cooking gas—or able to bribe the bureaucrats in charge of deciding who deserves subsidies. In-kind benefits are pilfered by middlemen who would find it harder to get at payments made to beneficiaries’ bank accounts.

Mr Subramanian acknowledges that managing the transition to a new system would be difficult. In much of India, citizens have to travel at least 3km (2 miles) to get to a bank. Digital payments are still a minority pursuit. One advantage of the proliferation of welfare schemes is that if one of them fails to pay out, others might.

Another obstacle is that a fair few billionaires would also benefit from a truly universal UBI. Telling an illiterate farmer that a food-in-kind scheme he has used for decades is being scrapped to finance a programme that will put him on par with Mukesh Ambani, a tycoon who lives in a 27-storey house, will not be a vote-winner. In truth, Mr Subramanian’s proposal stops a little short of true universality: for his sums to add up, take-up must be limited to just 75% of Indians. That means either a return to flawed means-testing, or a hope that the better-off will voluntarily opt out.

Implementing a UBI would be easier in India in one important way: getting the money to recipients. Well over 1bn Indians now have biometric identification cards, known as Aadhaar. The system can handle money, usually by diverting incoming payments to a bank account linked to an Aadhar number. A blast of cash to all citizens enrolled in the scheme would be a feasible way to distribute the money—though that would mean everyone got money, including the conspicuously rich.

It will take time before 1.3bn Indians receive such a transfer. Keen as Mr Subramanian is, he concludes that UBI is “a powerful idea whose time even if not ripe for implementation is ripe for serious discussion.” For now the government is focused on meeting its long-held 3% deficit target, which it expects to miss by just 0.2 percentage points next year, and on the aftermath of “demonetisation”. But the idea will not go away. It may seem folly in a country home to over a quarter of the world’s truly poor to give people money for nothing. But it would be a swift, efficient way to make it home to far fewer of them.