The biggest challenge now is how they will define who the recipients of the scheme will be
Basic income is a powerful idea. If designed well and delivered efficiently, it can transform lives of the poor. The announcement by Congress president Rahul Gandhi signals a paradigm shift in our welfare thinking. That is, to move away from the subsidy regime and in-kind transfers, and embark on the path of providing direct income security. The findings of Sewa-Unicef experiment conducted in nine villages of Madhya Pradesh (MP) between 2011 and 2013 establishes beyond doubt the positive effects unconditional income transfers can have on the lives of the poor. They provide much needed liquidity to the poor households that live perennially in debt.
The amount promised by Congress— ₹6,000 a month per household—is a decent amount from the point of view of the poor households, and would make a substantial difference to their lives. Given that our average household size is about five, each person gets about ₹1,200 per month. In 2014, the Rangarajan Committee defined people as poor whose monthly per capita expenditure is below ₹1,407 in urban areas and below ₹972 in rural areas. The per capita transfer proposed is roughly an average of these two figures. The idea is to raise the minimum income of a household to ₹12,000 per month. It is premature now to evaluate the scheme itself since we do not yet have all the details. Whether it will actually be the ‘final assault on poverty’ will depend entirely on the design features on the one hand, and the efficiency of the delivery ecosystem that is yet to be created.
Ideally, basic income should be universal. However, given the size of the population, some kind of targeting is inevitable as a starting point. In the MP pilot study, income transfers were universal within a village. Each and every normal resident of the village received the basic income. Rahul Gandhi’s scheme is going to be targeted to the poorest 20% households, that is, 250 million people. The biggest challenge now is how we are going to clearly define who the recipients would be. The criteria should be as simple as possible.
In terms of design, four features are crucial for the scheme to be successful. Firstly, income transfers must be unconditional, once the basic criterion of eligibility is determined and the recipients are identified. One of the design features that lead to that success of Telangana’s Rythu Bandhu scheme for farmers was the fact that it was unconditional. Secondly, the entitlement and transfers should be to individuals rather than to head of the household. In the case of children below 18 years, mothers can receive the payments. Individual entitlement strengthens the agency and leads to individual empowerment. Thirdly, transfers ought to be monthly rather than annual or biannual. Experiencing regular stream of income has many positive psychological effects on the recipients. It results in a sense of income security and paves way to financial planning and intelligent investments. Lastly, in order to preserve the value of the money, the payments ought to be inflation indexed and eventually given a legal status so that it becomes a right.
Doing a pilot study covering different parts of the country is necessary in order to refine the design of the scheme.