To address this question, we need to examine the Indian social protection system as it exists today, and see what the issues and problems are. In the first place, compared to several of the Asian countries, India spends much less on social protection. It spends about 1.7 percent of its GDP. Compare this with 5.4 % by China and nearly 9 % by South Korea and 19.4% by Japan!
However, in relative terms, in the last 15 years, due to high rate of growth, the net amount allocated and spent by the Indian government on welfare has increased several fold. On what does Indian government spend its welfare money?
The two main flagship programs that swallow bulk of India’s social spending are:
1. Targeted Public Distribution System (PDS): PDS is a system of transferring food grains such as rice, wheat, sugar, etc., items to eligible poor families. The total food subsidy that the Indian budget for 2015-16 has earmarked is Rs. 1,24 trillion rupees. Which is nearly 20 billion US dollars. The allocation for the consumer alone, i.e., to implement the National Food Security Act is Rs. 650 billion ($ 10.24 billion).
2. National Rural Employment Guarantee Act (NREGA) – This is an Act of Parliament that provides, as a matter of right, 100 days of guaranteed employment to each rural household. The budget allocation for the financial year 2014-15 was Rs. 396 billion which is about $ 6.24 billion.
Then come the other programs such as mid-day meals in schools, old age and disabled pensions, scholarship, etc. These are well-meaning programs, but the biggest problem with them is that the benefit does not reach the intended population effectively and efficiently. Let us take the example of the PDS which is the single largest chunk of money in India’s social spending.
There are three types of issues that plague the PDS system.
1. Design Problems: The fact that the Government of India (GOI) has undertaken to procure, store and distribute food grains through Food Corporation of India (FCI) across the country is seriously flawed. The Shanta Kumar High level Committee appointed by GOI which submitted its report (January 2015) on restructuring FCI estimates that nearly 47 percent of the food grains from the PDS system leak or get diverted to the black market.. Economists who support the PDS system dispute this figure and, ironically, reduce the leakage to 42 percent. Secondly and equally importantly, the administrative cost of delivering the food grain is also unacceptably high. According to a Planning Commission study (2005), India spends about Rs. 3.65 to deliver one rupee of welfare to the poor. There perhaps cannot be a more dismal picture than this.
2. Definitional Problems: By design, all Indian welfare assistance schemes are conditional. The question is who the government thinks deserves welfare assistance. The GOI from time to time defines what is called the ‘poverty line’. According to Rangarajan Committee (2014) which is by far the latest definition, in the rural areas, a person is defined as poor if she is earning Rs. 32, i.e., roughly half a US dollar. By this definition, about one third of the Indian rural population is poor. This is ascertained though periodic surveys. The biggest problem is not defining the poverty line, but ascertaining who actually earns below this amount. The surveys undertaken by governments are riddled with problems, and a large population that ought to be receiving welfare is left out. And those that should not be receiving actually receive. The NC Saxena Committee on reexamining the methodology followed in poverty estimates severely criticizes the current methodologies employed.
3. Delivery problems: As the saying goes, ‘there’s many a slip between cup and the lip’. Quite apart from the fact that the administrative costs are ridiculously high, there are two additional problems at the delivery end. One, the discretion that lies with the agent who runs the ‘ration shop’ and how that is misused. He could give less quantity or he could also open the shop at a time most inconvenient to the workers. Either workers may decide not to go to work and thus forgo their wages, or simply lose the subsidised food grains. Further, there could be a government order that recipients should pick up grains for three months or six months at once (in monsoon season due to logistic reasons). If the recipients do not have cash to pick up their quota, they stand to lose it. Second, the poor quality of the grains that are delivered severely undermine and erode the value of the subsidy, in terms of the time spent in cleaning it, and the loss of some part of the total quantity.
Having reviewed an example of the existing social protection system in India, two issues we need to ponder.
1. Can we reduce our understanding of poverty just to food or lack of it? Is poverty just about not having enough food?
2. By giving 35 kilograms of wheat or rice per family per month, which going by the above discussion one is not sure if it reaches the intended households, can we arrogate to ourselves that we are addressing poverty ? Is that all it takes to remove poverty?
It is against this backdrop that we need to see the relevance of Basic Income in India.