Money

India considers giving cash handouts to citizens to eliminate poverty

Photo courtesy Hindustan Times

India is the latest and largest nation to consider giving cash handouts to its citizens in an effort to alleviate endemic poverty.

The notion, often called "universal basic income," has been gaining traction recently even in places that don't have the same problems with poverty that India does, as the world's second-most populous country.

India's national poverty level was 70 percent when the country gained its independence in 1947, according to the report, and 22 percent in 2011- 2012, the most recent year for which data are available. Despite "making remarkable progress," a poverty rate of 22 percent in a nation with more than 1.3 billion people means more than a couple hundred million people are suffering.

The "radical option" of universal basic income "may simply be the fastest way of reducing poverty," the report says.

In many places, leaders are considering experimenting with UBI in response to technological developments like automation that make human workers redundant. The rise of robots makes universal basic income an inevitability in the U.S., claims Elon Musk. Finland is in the midst of running a pilot program and Oakland, Calif., is gearing up to try its own program, too.

India's highly anticipated annual Economic Survey, released Tuesday, includes an entire chapter detailing the reasons why UBI could benefit the nation. It also lists the risks.

Ultimately the report proposes a payment of 7620 Indian Rupees per year, which is about $113, according to current exchange rates.

Even relatively small amounts of cash would still have a tremendous impact, the report says, noting that UBI is "more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains."

And current assistance programs aren't effective. "In India in particular, the case for UBI has been enhanced because of the weakness of existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor," the report states.

Sarath Davala, coordinator of the India Network for Basic Income
Photo courtesy Sarath Davala
Sarath Davala, coordinator of the India Network for Basic Income

Sarath Davala, coordinator of the India Network for Basic Income, cautions that none of this means UBI will be implemented overnight.

"It is very likely that Indian government will introduce a modified version of the universal basic income model. But not now," Davala tells CNBC. "They have just sent out a feeler in this budget."

And even if a cash handout is implemented in India, Davala says that he expects it won't be granted to every resident.

"Universal is an ideal, not a sacred vow," says Davala.

That's because the population of India is so vast.

"If we talk of, say, a 1000 rupees per person per month, you immediately multiply it with 1.3 billion. Even the most radical anarchist would need a strong drink before proposing it. So, the U letter in the UBI is a non-starter in India," says Davala.

"The U letter in the UBI is a non-starter in India." -Sarath Davala, coordinator of the India Network for Basic Income

He suggests rolling out a program that gives cash payments to the poorest 10 percent of the country first and then to 40 percent of the poorest people.

Most of the estimates Davala has seen for a cash payment in India range from $74 or 5,000 Indian rupees per year to $178 or 12,000 per year.

As with all basic income programs, the goal is not to sideline would-be workers. Instead, the goal is to ensure every human being is able to eat and get by and still have an incentive to find a job.

WHAT WOULD GANDHI DO

The Indian Economic Survey weighs the pros and cons of universal basic income through the lens of what Mahatma Gandhi might have said about it. Unfortunately, Gandhi has made proclamations that could be understood to support either side.

Here's Gandhi for cash handouts, as cited by the Indian government:

"I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny?

"In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions? Then you will find your doubts and your self melt away."

And here's Gandhi against handouts, as cited by the Indian government:

"My ahimsa would not tolerate the idea of giving a free meal to a healthy person who has not worked for it in some honest way, and if I had the power I would stop every Sadavarta where free meals are given. It has degraded the nation and it has encouraged laziness, idleness, hypocrisy and even crime. Such misplaced charity adds nothing to the wealth of the country, whether material or spiritual, and gives a false sense of meritoriousness to the donor.

"How nice and wise it would be if the donor were to open institutions where they would give meals under healthy, clean surroundings to men and women who would work for them … Only the rule should be: no labour, no meal."

In the end, the Indian government seems to conclude that Gandhi would be in favor of helping the needy.

"The Mahatma as astute political observer would have anxieties about UBI as being just another add-on government programme. But on balance he may have given the go-ahead to the UBI," the report says.