The Problem with India’s Proposed Universal Basic Income Scheme

The election season is in full bloom in India. The Congress party faces an uphill task as it has to dislodge an immensely popular prime minister and the ruling party in order to regain power. This is the reason why Rahul Gandhi, leader of the Congress party has resorted to economic jugglery in order to gain votes.

The Congress party has announced that if it is voted to power, it will ensure that the bottom 20% of the population receives a minimum income of Rs 6000 per month. This is basically India’s version of the universal basic income scheme. Given the size of India’s population, this scheme will be the largest in the world, if implemented.

Welfare schemes have been known to bankrupt nations. The downfall of Venezuela also started when the country implemented excessive welfare schemes. In this article, we will closely identify some of the possible challenges that India’s proposed universal basic income scheme may face.

Identifying Beneficiaries: India’s welfare system is known for leakage. India’s political class is known for openly admitting that only 15% of the proceeds of the welfare programs actually reach the intended targets. The rest is gobbled up by middlemen which ends up making the poverty problem worse. Rahul Gandhi’s scheme is designed to benefit the bottom 20% of the population of India. However, the problem is that the bottom 20% are simply inaccessible. The bottom 20% are so poor that there are no proper records that these people even exist. Many of them do not have any government-issued identification cards. Most of them do not have bank accounts even after the much publicized Jan-Dhan scheme by Prime Minister Narendra Modi. Identifying the true beneficiaries of this scheme as well as delivering the intended benefits to them is going to be an impossible task. If implemented, the universal basic income scheme will become an avenue for political middlemen to plunder national wealth in the name of welfare policies.

No Record of Income: Rahul Gandhi’s scheme proposes to issue benefits based on the current income of the families. A family will be considered to be eligible for the benefits if their monthly income is less than 12000. However, once again, the poor do not have documented sources of income. Most of them are daily wage earners, unskilled labourers and people who run small shops. Their transactions do not happen via bank accounts and neither do they file any income tax returns. Hence, it would be next to impossible to actually discern whether a family makes less than 12000 per month. Families who earn more than that amount will also start hiding their income so that they can obtain money from the government. This once again shows that the universal basic income plan is not only ambitious but riddled with unsolvable problems.

No Incentive to Work: Even if the scheme is somehow successfully implemented, the proposed universal basic income scheme will create entitlement amongst the lower classes. Since the government of India will dole out cash to every family, there will be no incentive to work. Also, if the data from previous schemes is any indication, then the welfare money is likely to be misused. Welfare schemes create an excess of money and lack of work amongst the lower classes. This creates an atmosphere where addiction becomes rampant. Congress has tried to pre-empt this problem by claiming that the money will be transferred to the account of the female member of the house. However, in many cases, women have also become addicts. If not, this arrangement is likely to give rise to more cases of domestic violence.

Already Running Schemes: The Indian government is already spending a lot of money on welfare schemes. Firstly, there is the Food Guarantee Scheme which leads to a huge subsidy bill. Secondly, there is MNREGA which is an employment guarantee scheme for all people in India. Under this scheme, the government is forced to give employment to people. This scheme also leaves the state with a massive bill to pay. Recently Narendra Modi has announced health insurance of up to 5 lakhs per annum for these same poor families. Many state governments led by Congress have also promised to give farm loan waivers to the poor. There are many more such schemes which are running in India.

Hence, the end result is that the bottom 20% of the poor will end up getting so many benefits that they will start making more money than the next 20%! This would obviously be unfair and would disincentives people to work.

Also, much has been written about the fact that India does not have the fiscal strength to support these expenses. Rahul Gandhi’s scheme is expected to raise the subsidy bill manifold if it is implemented. The additional money will have to be raised by taxes which is next to impossible given India’s low tax compliance.

Camouflages the Real Problems: Another major problem with Rahul Gandhi’s scheme is that it camouflages the real problems which are being faced by India. The political parties are trying to eradicate poverty by giving money to the poor. However, they are not solving the real problems like the lack of market reforms, the lack of irrigation and other modern technology which are at the root of the farmer crisis. If this path is followed, then India will end up spending a lot of money without actually solving any underlying problem.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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