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Free cash for all?

A “Mad Hatter''s charter” Too Utopian? Or an idea whose time has come? When the concept of a universal basic income whereby every citizen, irrespective of their economic status, gets a fixed amount of cash every month to ensure they have a minimal income was first mooted it was sought to be laughed out of court.

Free cash for all?

No subsidies for the middle class. Sportsperson Jwala Gutta at the launch of “GiveItUp” movement (giving up LPG subsidy). PTI



Hasan Suroor

A “Mad Hatter's charter” Too Utopian? Or an idea whose time has come? When the concept of a universal basic income whereby every citizen, irrespective of their economic status, gets a fixed  amount of cash every month to ensure they have a minimal income was first mooted it was sought to be laughed out of court.  And after the Swiss recently rejected it in a referendum, critics gleefully said, “We told you so.” But its protagonists may still end up having the last laugh. Or so, they believe.

The Swiss vote, they argue, should not be seized  upon to rubbish the scheme as it was heavily influenced by local factors such as widespread public fear of higher taxes prompted by the “no” campaign's use of “misleading” figures about how much it would cost to fund the scheme. Interestingly, the broad  principle of a universal economic and social safety net is said to be growing  and being seriously debated around the world, including India. 

In India, several pilots have already been tried out and more are planned. Indian policy-makers, it seems, have shown interest and are working with NGOs to try out the idea on the ground.  Arvind Panagariya, vice-chairman of Niti Aayog , is among its most high-profile and enthusiastic supporters. He has hailed universal and unconditional cash transfers to replace subsidies  as the simplest and most effective way of helping vulnerable groups. 

“If you want to help the poor along all dimensions  education, health, financial inclusion, basic amenities and even asset creation - put additional money in their hands with no conditions attached... Vulnerable groups, including women, Scheduled Castes and Tribes and the disabled gain more from the cash transfers than the general population,”  he wrote endorsing a book on the subject, Basic Income: A Transformative Policy for India, put together by a group of prominent Indian sociologists and a British economist. 

Sonia Gandhi, who was apparently initially sceptical, is also now said to be favourably inclined after seeing the feedback from areas where the pilots were conducted. Two pilot studies, funded by UNICEF and coordinated by SEWA, were carried out in Madhya Pradesh over a period of 18 months. The impact on the local population was “transformative,” showing a significant improvement in social indicators such as child nutrition, school attendance, sanitation, female empowerment, and socio-economic status of the elderly. So, what should we make of it? On the face of it, the idea of a universal cash-transfer scheme appears incongruous in an age of austerity when the welfare state is shrinking and there are calls for benefits to be scrapped. Increasingly, tests to determine benefits entitlement are becoming more rigorous even in rich European countries. Britain is in the midst of a raging row over the issue.

In India, middle classes are under pressure to give up state subsidies. Which, apart from adding to the state's financial burden, has led to widespread abuse. The system is tottering under the weight of subsidies and the government is minded to phase them out. The ball was set rolling by the UPA government which cut fuel subsidies despite the political risks involved. The Modi government is taking the axe to subsidised LPG cylinders. Narendra Modi has made a personal appeal to people to give up LPG subsidy if they can afford to pay the market price, and the government has set a target of  at least one crore  consumers falling in line. If they don't, it is reportedly considering  moves to introduce mandatory means-testing. Against this background, the proposal that the state should hand out hard cash even to those who don't need it sounds absurd. 

The universality principle  is being touted as the scheme's USP; yet  it is the most problematic bit. All it will do is substitute one kind of subsidy regime with another, except  that it will be cash-driven. So, the same lot of people who are being urged to surrender subsided LPG will then be given cash. Arguably, there is a strong case for scrapping the corrupt and inefficient Public Distribution System (PDS) meant for poor and low-income families and to replace it with no-strings attached cash transfers allowing the people to use it the way they like. But there is no logic in extending it to affluent families. Imagine giving a few hundred quids to  someone who happily pay thousands of rupees in salaries  to their domestic staff,  and the absurdity of it becomes self-evident.

I put this to Professor Guy Standing of the School of Oriental and African Studies (SOAS), London, who is closely involved with the Indian project and is one of the authors of Basic Income: A Transformative Policy for India. He insisted  that a universal scheme, especially in the Indian context, could be less costly, easier to run and more efficient than a targeted one. Devising a cheap, error-free and easy-to-implement targeted scheme, whether using the “discredited” BPL cards or any other method would be harder, he argued. All targeting methods, according to him, tended to suffer from high exclusion rates. For example, only a minority of the poorest had BPL cards.There are two  difficulties  with this argument. One  is  that it ignores the fact that vast sums running into crores of rupees might end up going to people who don't need it and won't put it to productive use. It will not make any difference to the lives of these people and will be a huge waste. A better option would be to increase the amount cash proposed to be given to targeted groups. The second fallacy is to assume that a universal scheme would be completely fool-proof and not suffer from bureaucratic red-tape, corruption, and exclusion errors. Let's not forget that its implementation would be managed by the same  bureaucracy that runs targeted projects. 

India being India, no scheme is immune to waste, inefficiency and corruption. If the results of the pilots are, indeed, as robust as being claimed then it certainly strengthens the case for replacing PDS with cash transfers though, of  course, findings based on a limited controlled experiment must be approached with caution. But a free-cash-for-everyone system is fundamentally flawed. Even in many Western countries, especially in Britain, the debate is only about replacing the plethora of existing means-tested benefits with one flat amount  in order to simplify the current regime. What India needs is not another form of freebies but a vastly improved welfare system for the poor. At the moment it is a bit of a joke, and any alternative is worth giving a shot. Let the rich look after themselves.  

The writer is an independent London-based commentator

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