In the last two weeks, there has been much speculation in some sections of media about Prime Minister Narendra Modi seriously considering Universal Basic Income (UBI) as a policy option. This comes on the heels of the electoral debacle Modi’s party faced in the recent elections in four states, and coincidentally just months ahead of the 2019 parliamentary elections.
This is the second wave of interest the current government has shown toward the idea of Universal Basic Income (UBI). The first wave was in early 2017 when the then Chief Economic Advisor to the Government of India, Dr. Arvind Subramanian, included a substantial chapter [2] on UBI in his annual Economic Survey (2016-17) which was presented to the Indian Parliament. The chapter explored the concept of UBI and observed that it could be a way forward to address poverty. Subramanian stated that a full-fledged UBI may not be feasible in India immediately, though it was possible to think of a Quasi UBI (QUBI) which would identify specific demographic groups in the population and give them an unconditional basic income. One of his speculations was that a QUBI could be to all women citizens, which would ensure that every household will receive a basic income. The discussion within the government did not proceed beyond this point, apparently as the Prime Minister was not convinced at that time of the political dividends flowing from this policy route.
The immediate trigger for the second wave of interest in basic income is the recent elections in the states of Telangana, Rajasthan, Madhya Pradesh and Chhattisgarh. At the time of these elections, the financial crisis affecting farmers became center-stage and the Congress party promised that they would waive farm loans as soon as they came to power. And they did so when they took charge of three states.
In the state of Telangana, the ruling party TRS went a step further by implementing several months before the elections a scheme called Rythu Bandhu, (Farmer Investment Support) which gives to the farmers Rs. 8000 (USD $115)[3] per acre per annum[4]. The cutting edge of the scheme is that it is unconditional, a feature that is considered central to the idea of basic income. Irrespective of whether farmers take up cultivation or not, the investment will be transferred to the farmers. The scheme benefited about 5.8 million farmers who own a total of 14 million acres of cultivable land in Telangana.
In 2017, responding to farmers’ agitation in the state, the Madhya Pradesh government implemented a different kind of scheme for farmers. It was called Bhavantar Bhugtan Yojana (BBY) which originally intended to pay farmers the net difference between the actual sale price and the Minimum Support Price announced by the government. Subsequently, however, the government introduced the notion of a modal rate which is the average of the sale price of a given crop sold in Madhya Pradesh on any given day, and in markets of two other neighboring states.
Both the schemes ran into controversy, particularly the latter. Regarding the Rythu Bandhu scheme, the criticism was that the scheme does not give any benefit to the tenant farmers who actually cultivate the land. Secondly, the scheme was criticized as regressive since it was paying rich farmers as well. The government then appointed J-PAL, a reputed international group based in the Massachusetts Institute of Technology in the United States to monitor and evaluate the scheme. In the initial survey conducted by it after the first round of transfers were made in June 2018 revealed that most cheques were for less than Rs.20,000 (USD $287), and only 0.8% of the farmers received more than Rs.50,000 (USD $718). A follow-up survey by J-PAL revealed that farmers spent the money judiciously with over 77% purchasing crop inputs, and 92% percent saying that they were satisfied with the scheme.
The Madhya Pradesh scheme was criticized because it brought in the notion of a modal rate which was far above the actual sale price. Ordinary farmers, who were unaware of the critical distinction between the actual sale price and the modal price, were in for a shock. Assuming the government would compensate them the difference between MSP and Sale Price, many of them also made distress sale of their produce and then realized that they would get much less compensation. Disappointed with this conditionality, many farmers were unwilling to sign up for the subsequent crop. This was not the only conditional aspect of this policy. The sale must take place during a prescribed window of three months. There was a cap on the volume that a farmer can get compensated per hectare. There was also a proposal that if a farmer sells his produce for less than 50% of the MSP, he becomes ineligible since it is the poor quality of his produce that is the reason for the low sale price, and that government should not compensate the farmer for producing low quality produce. And lastly, the scheme was applicable to only seven specific crops.
It appears that these two schemes and the farm loan waivers are the three primary options that the central government is discussing in order to find an effective response to the distress farmers all over the country are experiencing. Let us consider each one of them.
First, the loan waivers. All the three new Congress governments have announced loan waivers within days after assuming power. Even as these announcements have been taking place, experts from different locations have criticized loan waivers as harmful to the economy. Following these announcements by the new Congress governments, the former RBI Governor Dr. Raghuram Rajan released a document entitled ‘An Economic Strategy for India’ which he co-authored with 12 other well-known economists including the IMF Chief Economist Gita Gopinath and Sajjid Chinoy of JP Morgan, among others. The report advises the government to “… eschew loan waivers that divert resources from needed investment.” Arvind Subramanian in a recent interview severely criticized farm loan waivers as “an inefficient, retrograde and even perverse method of addressing farmers’ distress”. He further added that nearly 50% of the small and marginal farmers cannot and do not borrow from formal banks and they are completely left out of this mode of addressing farmers’ issues. Dr. Urjit Patel who had recently resigned as the RBI governor criticized farm loan waivers as corrupting the credit culture in the country. Addressing his party workers in Karnataka, PM Modi himself called Karnataka government’s farm loan waivers as a “cruel joke on farmers”, and that it benefits only a handful of farmers.
It is clear the farm loan waiver is not likely to be part of PM Modi’s new grand electoral narrative. This now brings us to the other two options. Between the two, the Rythu Bandhu seems to be a clear winner not just because of the electoral gains that the TRS party reaped from its introduction. It is because of certain essential features it has that are unique and demonstrate a clear transformation in the very grammar of welfare policymaking in India.
Firstly, it is an entitlement without having numerous conditionalities. The only conditionality is that the recipient must have a clear title. The curse of various welfare schemes in India is that each one comes with innumerable conditionalities thereby giving extraordinary discretion to inspectors who administer it. Rythu Bandhu makes a departure from this welfare practice. This is based on the assumption that any support given by the government must be given only to the deserving and that we need to ensure that it is spent only for the purpose it is given. Who deserves and who does not is decided by the government. And so is the purpose. Secondly, Rythu Bandhu is a proactive policy and not relief after the calamity has occurred. In fact, some economists such as Ashok Gulati, Arvind Subramanian, Bimal Jalan, etc., have said that it could be a potential agricultural policy for the entire country. The main point is that it is defined as an investment rather than welfare. Thirdly, because it is unconditional and a cash transfer, it is very easy to deliver. The record of delivery of Rythu Bandhu has been very impressive. Except in those cases where the land ownership is in dispute, the majority of farmers in the state have received cash in their bank accounts.
In addition to these innovative features, the TRS government has also added an additional scheme to all farmers called Rythu Bima, a life insurance scheme which provides coverage of Rs. 500,000 (USD $7,179). The annual premium of Rs.2272 (USD $33) per farmer is to be paid entirely by the state government.
This is this grand electoral moment that PM Modi is facing. What is he likely to do? Given that farmers have become quite vocal and that there is hardly any time before the Model Code of Conduct would come into operation around March 2019, he must respond in some form in the interim budget. Most likely, he will implement some version of Rythu Bandhu in combination with an insurance scheme for farmers. While this cannot be called a true UBI, it does carry the spirit of the idea of basic income because of its unconditionality. Normally we would be inclined to dismiss this is an electoral gimmick. We should not forget that in an electoral democracy, change comes in a clumsy way. We must be clear when we are positively moving forward and when we are not. In this case, the Indian political parties are embracing the spirit of basic income. This shift in India’s policy grammar should be seen as a welcome move in our journey to build a better society.
[1] Sarath Davala is the Vice-Chair of BIEN and Coordinator of India Network for Basic Income (INBI).
[3] To make sense of these amounts, it is useful to know that the rural poverty line in India is defined on the basic of per capita expenditure, which is half a dollar a day.
[4] This amount will be disbursed twice in a year, one just before Rabi crop season and one before the Kharif crop season.
Using experimental and quasi-experimental evaluations of large scale UTCs in SSA, conducted in collaboration with the Transfer Project, which sees the participation of UNICEF, FAO, The University of North Carolina, national governments and local research partners, the paper collects evidence regarding six common misconceptions about UTCs and refutes them: 1) UTCs induce higher spending on alcohol or tobacco; 2) UTCs are fully consumed (rather than invested); 3) UTCs create dependency (reduce participation in productive work); 4) UTCs targeted to households with young children increase fertility; 5) UTCs lead to negative community-level economic impacts (including price distortion and inflation); 6) UTCs are fiscally unsustainable.
1) UTCs induce higher spending on alcohol or tobacco
A common argument against UTCs is that they would lead to spending on superfluous goods, as alcohol, tobacco, or drugs, which are sometimes called “compensatory bads”.
The argument is largely based upon anecdotal evidence, spurring from the fear that cash would be administered improperly and wasted, and would lead to the prioritization of in-kind transfers. The paper found that as the household expenditure allocated on food and other items increased, spending on alcohol and tobacco didn’t.
2) UTCs are fully consumed (rather than invested)
Being transfers unconditional, the fear may arise that they are immediately consumed, and that they do not stimulate longer term planning and investment in productive activities and human capital.
Noticing that the cash transfers were administered in locations where the populations is well below the poverty line, it shouldn’t come as a surprise that much of the transfer is used to cover basic needs, which in turns ensures the maintenance and a form of stimulus to human capital development.
Even as the role of direct expenditure is substantial, the paper finds that UTCs have positive effects on the productivity indicators chosen as representative of investments, stimulating crop and livestock activities.
3) UTCs create dependency (reduce participation in productive work)
A common perception that is based upon the longstanding discourse on welfare dependency, fears that gave birth to the concept of workfare in the sixties and that grew under Reaganism and Thatcherism.
The idea is that poor families receiving cash transfers would become lazy and lose the incentive to work, when it isn’t laziness in the first place to create poverty. The allegations of welfare dependency thus stem from a sort of moral high ground, the implication being that poverty is somehow “deserved” and that the poor are not willing to work in order to better their condition once they receive the transfer.
We have seen formerly that UTCs influence investments, it is thus certain that they do affect household decision making in labor allocation, i.e. how receivers participate to the labor market; but labor force participation rate as exemplified by the chosen indicators showed no significant impact of transfers on labor supply.
4) UTCs targeted to households with young children increase fertility
Policymakers often sustain that Cash Transfers conditional to motherhood and having young children will have the unintended effect of increasing fertility rates.
The concern is even more severe for SSA, the last region to start experiencing the demographic transition.
Given that Conditional Cash Transfers (CCT) are the instrument of choice to foster higher fertility rates in OECD countries, the implications for their application look unavoidable; nonetheless the study found no instance in which a government UCTs increased fertility in SSA. Rather, the evidence suggests that UTCs have in some instances increased birth spacing and delayed pregnancies among young women.
5) UTCs lead to negative community-level economic impacts (including price distortion and inflation)
This fear stems from the idea that isolated cash injections would have a one-sided effect and only stimulate the demand side, whilst having no impact on the supply side. This would lead to detrimental effects, namely price distortion and inflation, devaluating the transfer and affecting also non-beneficiaries, which would find themselves facing higher prices.
The study found no evidence of inflationary effects, which can be explained by three factors: the relatively small share of UTCs beneficiaries (20% of the households); the sum of the transfer, which while substantial for the poor recipient it’s just a tiny proportion of the total cash flow of the community; the supply side is elastic, and there is enough market inter-connectivity for production to match increases in demand.
Theory suggests that UTC could be used to overcome market failures, functioning as a stimulus to pro-poor productivity and having net positive impact on local economies. Positive spillovers should manifest and affect non-beneficiaries, as a result of the stimulus to aggregate demand.
Local economy simulations indicate that UTCs generates positive effects on the local economy, with every dollar injected in the economy via the transfer causing nominal multiplier effects ranging from 1.27 in Malawi to 2.52 in Ethiopia.
6) UTCs are fiscally unsustainable
Once UTCs end their experimentation phase and are institutionalized, there is diffused concern that the administrative costs are too high. The fear is that the medium or long-term maintenance of the programs is fiscally unsustainable, and supposedly high administrative costs have been cited as one of the main reasons for not adopting UTCs.
The cost-transfer ratio (CTR) is the indicator generally used to measure the cost-efficiency of the programs. The CTR depends largely on the time at which it is measured; at the beginning of the programs there are large, fixed, start-up costs which weigh heavily on the ratio, representing a large part of the total costs in the first period. The start-up costs combine with the lack of economies of scale, which require times to be attained.
Using estimates of the CTRs for the programs of the Transfer Project, accounting for the scale-up effects and correcting for the start-up, lump sum costs, the study found that cash transfers at scale as a percentage of current spending and GDP are feasible and fully within the cost considerations of any national government. The expenditure for UTCs as a percentage of general government expenditures would have an average of 4.4 percent across countries, but could decrease of the 37% if the program was limited to the rural areas.
“…we have drawn on cross-country evaluation data to summarize evidence on six common perceptions that we believe hold back political acceptance of such programs. While the political context is such that these perceptions will need to be tested in each specific program in order to be fully internalized, we hope that the growing body of evidence, including that presented inthis paper, will permit more evidence-based rather than ideologically-based debates around cash transfers in LMICs”
Floyd Marinescu, a Canadian entrepreneur who describes himself as “an angel investor, author, humanitarian, and homosapien”, is featured in this interview, on CBC Radio, which has been condensed into a Whiteboard animation. Floyd has been a long-time defender of basic income, from a business perspective. According to him, the rise in aggregate demand which basic income will generate, is just what business needs to flourish. Paying for a basic income would also be fairly straightforward, Floyd reasons, especially when you realize that it’s net cost that matters, not gross cost. Financing would then come from closing redundant welfare programs, resolving tax loop holes, moderate rises in income tax and a series of other tax revenues (e.g.: carbon emissions, financial transactions, natural resources extraction, intellectual property).
Marinescu talks about “compassionate capitalism”, which builds on innovation and entrepreneurship, but also redistributes corporate gains to the whole of the population, so that “the working poor don’t need to be destitute”. For him, basic income also means freedom, personally and professionally, given the high number of people clearly mismatched with their current jobs, since it would allow them to make the necessary changes in their lives. Basic income would also allow more risk-taking, which is essential for entrepreneurship. Overall, according to Marinescu, basic income would be a great economic stimulus for Canada, putting more money into circulation, benefitting most people and also the government, which would collect more taxes to spend on public goods and services.
After the cancellation of the Ontario basic income experiment, country-wide discussions about the issue continues in Canada as the Federal Government approaches the policy, although a direct intervention in Ontario is unlikely. Prime Minister Trudeau and his Social Development Minister Jean-Yves Duclos have already stated that the Federal Government does not intrude into regional policy programs. However, Duclos has said, this month, that existing benefits will eventually cover more people than those already eligible for state (not universal) guaranteed minimum income. In his words: “At some point, there will be a universal guaranteed minimum income in Canada for all Canadians”.
So, despite all the opposition, rallies and advices against the Ontario axed basic income experiment, apparently it is indeed buried. However, it seems, interest in the concept is higher than ever, which is not surprising since the causing needs are still there (poverty, bureaucratic conditional welfare, precariousness, unemployment). Pundits on television agree over the concept, while looking at it as a tool to reduce the government influence radius (a more conservative approach to basic income), but certain that other basic income pilots will effectively be tried out in Canada (if not by other reasons, for beefing up the liberal agenda). Trudeau, on his end, has expressed sympathy for basic income, as a way to support workers, giving people some stability. That and a myriad of other considered policies, according to him: “I don’t think I’d be speaking out of turn to say that [basic income] it’s still something that is in the universe of all sorts of tools that we’re looking at on how to best help Canadians”.
Even though the Federal parliamentary budget office has calculated that supplying a guaranteed financial floor to all Canadians (up to an average of CAN$ 9421/year) would implicate an expenditure rise on social benefits of around 30%, basic income captures interest even on the Conservative side of the political spectrum. Karen Vecchio, MP for the Conservatives, has favoured the concept, although rising cost implications and questioning eventual long-term benefits for Canadians. That’s exactly why Hugh Segal, one of the Ontario basic income experiment designers (and former Conservative senator), affirms that such pilots are necessary: “to figure out whether the idea works”. Segal, as well as Jagmeet Singh, leader of Canada’s New Democratic Party, argue that the Federal Government should pick up the cancelled Ontario basic income experiment, or at least help in financing further regional pilots.
A new working paper released by Growthpolicy, which disseminates research by Harvard scholars on the topics of economic growth, employment, and inequality, argues that a universal basic income is superior to current low wage subsidies in several ways. The author, Associate Professor of Economics at Harvard, Dr. Maximilian Kasy contends that these subsidies, specifically the Earned Income Tax Credit (EITC) in the United States, comparatively carries several economic, moral, and political disadvantages.
The EITC is a subsidy to low income working families and increases with income to specific thresholds, depending on household size. The credit has been found to incentivize work, reduce welfare dependency, improve child health and educational outcomes, and lifts roughly 6.5 million people above the official poverty line. Kasy argues that a basic income could produce similar outcomes while eliminating several important drawbacks. First, because the demand for labor is finite, especially in times of recession, incentivizing some workers to work more, which ultimately creates fewer jobs overall. In other words, if a service sector employee works overtime hours in order to maximize the EITC credit, her employer will not need to hire an additional employee to cover those hours. Further, multiple researchers have found that subsidizing low wage work via the EITC plus cuts to traditional welfare, in the 1990s, decreased pressure on employers to offer a living wage and ultimately contributed to the declining value of the minimum wage. In essence, Kasy argues, the EITC is a subsidy to employers. Conversely, a UBI would increase the bargaining power of workers and wages would thusly rise.
Dr. Kasey also asserts that a basic income would reduce the coercive power that employers, abusive partners, and a paternalistic welfare system hold over economically marginalized populations. Low wage workers, survivors of domestic violence, and mothers at the mercy of intrusive welfare policy would have an increased ability to walk away from exploitative situations. Furthermore, a basic income would fairly compensate child and elder care work, which is largely done by women and goes unrewarded in our current wage-based system.
Finally, as many have argued, Dr. Kasey finds that a universal basic income carries potentially greater political stability than means-tested benefits. For example, while the passage of Social Security in the 1930s and Medicare in the 1960s was met with cries of “Socialism!,”, these were soon widely popular across the political spectrum and are rarely considered as potential areas for federal budget cuts.
Basic Income, Solidarity Economy and Social Protection
The 24th BIEN CONGRESS in Maricá & Niterói – Rio de Janeiro, Brazil – 27-29 August 2025
Maricá provides unconditional transfers to almost half of its population. 7 other cities in the state of Rio de Janeiro have already created their own local currencies inspired by Maricá’s Citizens Basic Income. Our other host city, Niterói provides transfers benefiting more than 100,000 individuals.
Pre-congress events: Latin America Day: 25 Aug. & Early Career Day: 26 Aug.
