Can India make a universal basic income work?
India needs a pilot evaluation to test the impact of a universal basic income before such a scheme makes it to parliamentary debates and legislation
India needs a pilot evaluation to test the impact of a universal basic income before such a scheme makes it to parliamentary debates and legislation, argues an IdeasforIndia article by Saksham Khosla of Carnegie India. The Economic Survey 2016-17 argues that a universal basic income can effectively replace India’s largest social welfare schemes, even as it concludes that more time is needed for its implementation. However, schemes such as India’s food distribution and public works programmes, which the Survey sees as candidates for replacement, have improved significantly over the years in terms of their efficiency and coverage, the blog post argues. With reports of authentication failures and exclusion errors due to Aadhaar, significant progress also needs to be made on this front before large-scale Aadhaar-linked cash transfers can be trusted to reach recipients, Khosla argues.
Investments in high-speed rail networks can raise worker mobility significantly, shows a new National Bureau of Economic Research (NBER) paper by Daniel F. Heuermann of the University of Regensburg and Johannes F. Schmieder of Boston University. The authors analysed travel times and train connections between all regions in Germany between 1994 and 2010 to find that a reduction in travel time by 1% raised the number of commuters between regions by 0.25%. Improved accessibility allowed many German workers to work in smaller cities while continuing to live in bigger cities and enjoy the perks of an urban lifestyle. Smaller cities also benefited from the increased pool of qualified workers, the authors show.
The true impact of the recent rise in protectionism and weakening of trade agreements might not be felt until the next crisis hits the global economy, suggests a recent NBER paper by Jeronimo Carballo, assistant professor at the University of Colorado, and others. The researchers show that existing trade agreements mitigated the impact of the global financial crisis of 2008-09. An analysis of US firms between 2003 and 2011 has revealed that this is because when trade agreements existed, firms were less anxious about possible protectionist responses from partner countries. In contrast, firms tended to exit markets where the US did not have a preferential trade agreement, impacting jobs and investment in the US. Dismantling existing trade agreements may not be a very sustainable way to ensure prosperity, the authors warn.
A financial shock can reduce the number of firms engaged in exports, which can have a long-term negative impact on a country’s export volumes, argues an NBER working paper by Paul Bergin, professor at University of California, Davis, and others. They argue that a financial shock will raise the cost of capital and deter new firms from entering the exports segment. This will also mean lesser investment and fewer imports of capital goods for the overall economy.
Also see: Financial Frictions and Trade Dynamics
Direct income transfer to farmers in India would be a more efficient mechanism to address farm distress compared with the price deficiency payment (PDP) system, shows a recent ICRIER paper by agricultural economist Ashok Gulati and co-authors. Under the PDP scheme, the government pays to the farmer the price difference between a crop’s minimum support price (MSP) and its market price. However, declaring MSPs based on the costs incurred by the farmer while completely ignoring the demand side can lead to efficiency losses that far exceed the government support. High MSPs for crops can also be market distortionary—one reason why China has been practising direct income transfer to farmers since 2004. Direct transfers, while easier to implement, would also be transparent, equitable and crop-neutral, even as the costs incurred may be at par with the PDP schemes. For direct transfers to be implemented successfully, steps such as digitization of plots, linking them with Aadhaar and bank accounts, tenancy reforms, etc., need to be taken.
Economics Digest runs weekly, and features interesting reads from the world of economics.
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