Mint Explainer: The politics and the economics of basic income transfer schemes

Madhya Pradesh’s experiment with Ladli Behna Yojna, some say, delivered the goods for the Bharatiya Janata Party in the Assembly elections held in November 2023. Former chief minister Shivraj Singh Chouhan launched the scheme in January 2023 under which eligible women were entitled to ₹1,000 a month. The amount was increased to ₹1,250 from October.

Earlier this month, Delhi finance minister Atishi presenting the state budget for 2024-25 announced that the Aam Aadmi Party government would launch Mukhyamantri Mahila Samman Yojana to give a monthly allowance of ₹1,000 to all eligible adult female beneficiaries. In an interview with Mint, Atishi said she hopes to transfer the first instalment to bank accounts by October.

On the same day, the Himachal Pradesh chief minister Sukhvinder Singh Sukhu announced a similar scheme where women would be given ₹1,500 a month under the Indira Gandhi Pyari Behna Sukh Samman Nidhi Yojna from 1 April.

Last August, the newly elected Congress government in Karnataka launched a scheme to transfer ₹2,000 to women heads of family under the Gruha Lakshmi scheme.

The AAP government in Punjab had made a similar promise but it remains on paper perhaps due to the precarious condition of the state’s finances.

The Congress has promised to roll out similar schemes in the rest of the country if it comes to power. Actually, the party had made this commitment in its 2019 Lok Sabha elections manifesto, where it said that it would launch Nyuntam Aay Yojana (abbreviated to Nyay) or a minimum income scheme if voted to power. It had proposed to transfer ₹6,000 each to the poorest 20% of households.

What is the political message?

The common messaging was that these income transfer schemes were meant to empower women socially and economically and provide them with a safety net.

Ahead of the transfer of the first instalment, Chouhan told a gathering of women that the scheme was meant to change their lives as the amount would not just supplement their household income but also give them the liberty to spend it as they desired. He said that the state government intended to gradually increase the monthly transfer to ₹3,000.

Chouhan described himself as a benevolent elder brother when he rolled out the scheme in Madhya Pradesh.

In Delhi, finance minister Atishi said chief minister Arvind Kejriwal was fulfilling the duty of being an elder brother and a son by bringing the scheme.

The Congress governments in Karnataka and Himachal Pradesh attributed the scheme to the guarantees that the grand old party had given to empower women and improve the lives of the poor.

How is the scheme benefitting the women?

Such transfers are unconditional and that allows the beneficiary to make her own decisions on how she would like to spend it. Since the money is transferred into a female beneficiary’s bank account, it reduces the risk of it being spent by her husband on alcohol.

States have not carried out any pilots to study how beneficiaries use unconditional cash transfers but a small project by Self Employed Women’s Association of India (SEWA) and Unicef in some very poor villages of Madhya Pradesh a decade ago sheds some light.

This small pilot involved the transfer of ₹200-300 to every adult and ₹100-150 to every child in the selected villages for 12-17 months. Importantly, the study found that the cash transfer did not make the beneficiaries lazy but rather more productive. Alcohol consumption did not rise either. The money was put to various purposes as a result of which nutritional intake improved, household indebtedness reduced, enrolment and school attendance rose, access to healthcare improved and investment in productive assets rose.

For instance, some households invested in goats which led to a sustained increase in their income during the period of the pilot and after. It also led to greater empowerment of women. It strengthened their control over finance and improved their participation in decisions on spending the cash received.

What has been the global experience with income transfer schemes?

Many studies have been conducted over the years with conditional and unconditional cash transfers in several developing countries. These pilots such as the multi-year one that started in 2017 in Kenya threw up similar results as the SEWA-Unicef pilot. Neither idleness nor drinking increased when cash transfers were made. There were occupational changes with many shifting to self-employment. Commitments such as 12 years of cash transfer led to an increase in savings and investments of the recipient households.

This universal basic income pilot, still underway, also found that long-term cash transfer commitment had a more transformative effect than the short-term ones (of two years) and that lumpsum payments led to more entrepreneurial activities among the recipients. The cash transfer pilot in Kenya is a collaboration between non-profits and financial backers.

Can governments afford basic income transfers?

Running a multi-year basic income programme for the poorest households cannot be possible unless governments at the Centre and states find enough resources for the purpose. It might require governments to reprioritize their spending plans or fold some of the existing welfare schemes into a basic income programme.

Former chief economic adviser in the finance ministry, Arvind Subramanian, making a case for universal basic income in the Economic Survey of 2016-17 argues for replacing some of the ongoing welfare schemes with a cash transfer scheme, rather than running them parallelly. The Survey noted that the inefficiencies in the plethora of welfare schemes of the Centre and state governments had failed to lift people out of poverty. However, withdrawing welfare schemes might not be easy.

How much do these governments spend on these schemes?

While Karnataka and Madhya Pradesh have launched income transfer schemes for women, it remains to be seen how long these schemes will be run.

Karnataka will be spending more than ₹28,600 crore on this scheme, or about 63% of the total estimated expenditure on social welfare and nutrition. The spending is about 8% of the total expenditure of the state for 2024-25.

Delhi has made an outlay of ₹2,000 crore for the scheme, and that’s about 2.6% of its total expenditure of ₹76,000 crore for 2024-25. Madhya Pradesh had estimated that the Ladli Behna Yojna would entail an annual outlay of ₹15,000 crore when the scheme was rolled out last year.