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India Is Considering Giving 20 Million Citizens Free Money

Business Suffers As India Struggles to Replace Banned CashBusiness Suffers As India Struggles to Replace Banned Cash
A vendor displays Indian five hundred, one hundred and fifty rupee banknotes at a vegetable wholesale market in Mumbai, on Nov. 19, 2016. Photo by Dhiraj Singh/Bloomberg—Getty Images

One of the biggest countries in the world is coming closer to implementing one of today’s buzziest ideas in economics: Universal basic income. Or at least a version of it.

Speaking at the World Economic Forum, which is being held this week in Davos, Switzerland, Amitabh Kant, an Indian economic official, said the country is seriously considering a plan in which the government would hand out free money to about 20 million Indian citizens.

The Indian government is reportedly close to releasing a formal report on the new basic universal income proposal, which follows India’s small 2011 trial of universal basic income in Madhya Pradesh, a central state, and West Delhi.

If it becomes policy, India’s plan isn’t likely to be as no-strings-attached—or as generous—as some advocates would like. Kant said the plan he supports would offer about $15 a month (1,000 rupees), and only to families below the poverty line. What’s more, the money would be structured as an interest free loan that would have to be paid back within three years. Kant says structuring the payments as loans would allow the payments to be recycled through the system as families exit poverty. It would also help pay for the program.

Kant also advocates getting rid of some of India’s current poverty programs, which he said are plagued by corruption and waste. He said universal basic income could get around those problems by allowing the government to deposit the money directly in the bank accounts of female heads of households. India has already spent the past few years getting more of its citizens signed up for bank accounts.

Guy Standing, a University of London professor, says he estimates a plan to give Indian citizens universal basic income would cost the government about $100 billion a year, but it wasn’t clear if Standing’s estimate was for a full program or just for people below the poverty line.

Standing, who was on the WEF panel with Kant and is one of the biggest advocates of universal basic income, warned India about rolling out a program that only made payments to people below the poverty line. He said that could create a disincentive to work, because once you crossed over the poverty line the government payments would drop. What’s more, he said, it might cause some to hide income from the government, and lead to lower tax revenues. Kant said the government had made a huge effort in recent years to mainstream India’s black economy, an effort that would result in much higher tax revenue in the future.

“The government’s coffers will be quite rich because of this,” said Kant. “My belief is it is better to pay that money straight into the individual account rather than going through any middle man.”