In India, it is not unusual for the rich to receive more welfare money than the poor. As India’s Finance Ministry noted in its annual economic survey released in January, the problem is “almost intrinsic” to the country’s anti-poverty and social programs. Much of the money is funneled through India’s convoluted bureaucracy and ends up “leak[ing] to non-poor and…corrupt local actors.” But a new idea, the ministry suggests, could ensure that funds for the poor actually reach the poor: a universal basic income.
The decision to simply hand out cash to everyone is not new and, of course, quite political. In 2013, the Indian government had also toyed with a variant of universal basic income known as “direct cash transfer,” but it never took off because of the difficulties in determining who should receive such payments. But setting all that aside, the concept of universal income is a rather simple and appealing one: replace existing social programs with a comprehensive cash payment. And that payment doesn’t have to be large. The Finance Ministry’s economic survey estimated that a modest sum of $4 per person per month could reduce India’s poverty level from 22 percent at present to seven percent. The cost would be a mere two percent of GDP, or $42 billion, which is approximately the same amount the government spends in total on food, fuel, and fertilizer subsidies.
Compared to other social programs, universal basic income would also be simpler to implement in that it would be granted based on only one condition: Indian citizenship. Such an approach minimizes all the distortions, such as targeting based on income and other factors, and maximizes efficiency. This means that although a payment of few thousand rupees will have very little impact on the wealthy, the same payment to a very poor family would substantially improve their welfare.
Let’s consider the example of India’s mammoth public distribution system, which subsidizes food for poor households. The government estimates
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