Jan Dhan 2.0: Consider a universal basic income

Apart from fulfilling its usual duties of governance and paying for the security, healthcare and education of people, the state should deploy public funds to grant every adult a certain sum of money for personal use every month.
Apart from fulfilling its usual duties of governance and paying for the security, healthcare and education of people, the state should deploy public funds to grant every adult a certain sum of money for personal use every month.

Summary

  • We have a platform in place for direct cash transfers and may have sufficient funds within a decade to put everyone but the well-off on a monthly payroll. It’s time to evaluate the idea

India now has over half a billion Jan Dhan accounts, a truly staggering count of basic banking relationships created by the government in less than a decade under its Pradhan Mantri Jan Dhan Yojana. As finance minister Nirmala Sitharaman said this week, over 55.5% of these bank accounts are held by women. The scheme, she added, stood out as a “pivotal initiative" for financial inclusion. With digital identities proven by Aadhaar as its base, it has served as a channel for the direct transfer of cash benefits to various beneficiaries. By making formal credit accessible, it has also helped many of our most needy escape the clutches of moneylenders. Crucially, the scheme’s coverage of India’s poor allows the Centre to provide instant relief from distress in case the need arises. In 2020, for example, Jan Dhan’s reach proved useful after covid struck. An all-India lockdown sent large numbers of city migrants walking long distances to reach the security of food and shelter at their birthplaces. Pandemic panic may have been worse without the monthly aid of 500 for three months announced for each of the 200 million odd Jan Dhan accounts held by women back then. As a mechanism, however, its most heroic role may be yet to come. For it enables us to envision a social safety net in the form of a universal basic income (UBI).

As a policy concept, a UBI is redistribution at its most literal; it puts everyone on the state’s payroll. The proposal is simple: Apart from fulfilling its usual duties of governance and paying for the security, healthcare and education of people, the state should deploy public funds to grant every adult a certain sum of money for personal use every month. The usual objection to this ‘money for nothing’ is the moral hazard it could pose. If cash handouts start showing up in bank accounts, would it not make recipients too lazy to work? The answer depends on the actual size of these monthly transfers. With popular aspirations on an incline, transfers that allow no more than bare subsistence are very unlikely to distort labour-market incentives. What helps the hard-up meet primary needs will aid rather than disturb an economy driven by fast swelling demand for goods and services. The next major question, for us especially, is whether the government can afford to run such a programme. Although maximum coverage is the conceptual aim of a UBI, its beneficiary list need not strictly be ‘universal’. The well-off would certainly have to be kept out. Yet, even if the nearly 68 million individuals who filed income tax returns last year are excluded (along with their dependents), and we manage to minimize tax evasion, we may still have over a billion Indians to pay. And even a monthly UBI of 1,000 each, a pittance by today’s standards, would imply an annual fiscal outgo of 12 trillion. This is about 2 trillion more than the current year’s budget for infrastructure and not an attractive proposition at this juncture.

But what of the future? Annual economic expansion of 6% plus could change the fiscal calculus within a decade or less. As poverty declines and our tax base expands (as expected to), fewer people will need transfers. With its viability just a matter of time, we should place the concept of a UBI under evaluation. Since it would impart a powerful fiscal stimulus by placing money directly in people’s hands, for instance, its macro impact would need to be studied in advance. Once the numbers begin to add up, it could form the basis of Jan Dhan 2.0, a whole new welfare deal for the needy.

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