Nagrik Dialogue

Covid-19 and Basic Income for the Poor of India?

Michael Hopkins 
CEO and Chairman of MHC International Ltd.

Many have vouched for the need to provide a basic income for all if we are to solve many problems of hardship around the world.  In India shocking images, as shown in the above photo, have emerged of lakhs of migrant workers desperately walking even hundreds of kilometres to their villages where they have an increased hope of receiving enough food. All started from Narendra Modi’s sudden decision to effect a nationwide lockdown as of March 22. There is no doubt that such drastic measures will help to stop the spread of such an infectious virus as Covid-19. Even harder for Indians, being such warm and sociable people, is the need for social distancing to keep the disease at bay. But as measures to contain it, unfold, we are witnessing a humanitarian and economic crisis of unprecedented proportions[1].

Hardship especially for very poor people, quickly follows.  The measures announced by the government so far have really hit hard markets, transport, tourism, basic services as well as social gatherings.  These measures are crucial to stop the virus spreading but also lead to fewer means for the poor to exercise small and micro business activities, and hence a loss of their meagre incomes.  Poor people are poor not because they are lazy.  Far from it.  The poor generally work long hours for tiny rewards.  They must not be punished for that and the police beating people at random for not observing curfews must be stopped.  Poor people must be helped not punished.

Around the world some propose radical changes to the public sector, as it is noted that the virus has led to increased debt and potential bankruptcy.  “They will not be saved by tax breaks and more credit; they need people to be able and willing to buy their goods,” says Guy Standing in].  Standing further argues strongly in favour of a basic income for everyone. I have analysed elsewhere the pros and cons of basic income [see ], but there is no doubt that giving poor people extra financial resources will bounce back immediately into increased consumption, of which most will go to the private sector.  Better, much better, than merely eliminating corporate tax breaks to the tune of one trillion dollars as done in the USA.  The result was a boom in the stock market as companies bought their own shares further enriching the already rich.  More recently, the USA has decided to inject a further 2 billion dollars and this time with opposition support.

In India, the Central government has announced a Rs. 1.7 trillion package ($US126bn) aimed at alleviation of the impact of the lockdown on the poor over the next three months.  In addition some  states have announced additional measures and relief packages varying in nature and scale. But these are very small compared to the huge size of India with a total GDP of $US2.6 trillion in 2017.

The ISLE letter noted that the announcement of transferring Rs. 500 per month to each JDY woman account holder was grossly insufficient. They insisted that the “Centre and States together should try and ensure a minimum transfer over the next three months of at least Rs 6000 per month with a major part borne by the Central Government.” However for poor people even $10 per month (roughly Rs.1000) for each family member would help both them and their local economy. A quick calculation shows that for the estimated 5.5% of the population (78 million) who are desperately poor the total cost of Rs1000 per month for 3 months (the estimated time the crisis will last) would total Rs234billion or $US17.3billion.  Compared to the Rs1.7 trillion cited above, that sum would be eminently manageable.

Then, as ISLE noted, “special effort has to be made to make assistance to be provided on a non-discriminatory basis”.  But delivery could be a problem since not all poor households, have bank accounts, and proper mechanisms need to be evolved on how cash assistance be designed for them. Further, non-discrimination means that special efforts must be made for landless households/individuals who have few methods by which they might be identified.  In Kenya, just about everyone who is poor has a mobile phone that can accept mobile money – known as MPESA.  Kenya is poorer than India, but not by much.

Some have suggested, as occurs in refugee camps, that we distribute food and medical supplies to the poor. This could be done with a combination of institutions such as the Red Cross, the World Bank, international aid bodies, service organisation such as Rotary, the private sector (both Rotary and the private sector are already active in this regard) and government.  All well and good, and this should be further encouraged.  But regular cash brings immediate benefits, and brings the additional benefit of stimulating the local economy for those poor souls who are really stuck right now. 

Basic income benefits would be immediate.  Poor people would immediately spend on local services and food, thereby creating a decentralised and large effective demand for the slum economies.  Yes, some may be used for criminal or socially abusive activities.  That cannot be avoided unfortunately, although cash transfers would help prevent criminality, providing a signal that the government really cares. Cash is king, and most of the money will go through useful outlets and help the poor significantly.

[1] Drawn from a letter to Modi by a large number of academics from the Indian Society of Labour Economics (ISLE) in New Delhi, March 2020.

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Nagrik Dialogue is the face of Nagrik Foundation’s communication skills that comes in the form of a monthly magazine. It will work as a bridge for those working at the grass roots level and those who support them in any form and manner.