India’s recently published yearly view on economic development discussed the possibility of an Indian universal basic income (UBI). Despite being the shortest way to eliminate India’s rampant poverty, the survey concludes that India is not yet ready for the implementation of a UBI program. One of the major obstacles is the underdevelopment of its financial infrastructure. But recently, progress has been made to create a more efficient Indian financial system, boosting the idea of an Indian UBI.
Observations
- India launched the Pradhan Mantri Jan Dhan Yojana project in August 2014: India’s national mission of financial inclusion. As of February 2017, 276 million (22.8% of India’s population) bank accounts were opened, on which almost $10 billion was posited.
- India launched the Aadhaar project in January 2009: India’s biometric system. As of January 2017, 99% of Indians above 18 and 91.4% of all Indians now have an Aadhaar (India’s biometric identification system) card.
- As of January 2017, India had 15 billion (94.9% of India’s population) mobile phones in use, of which 292 million were smartphones.
- India’s Economic Survey 2016-17 states that “When the trinity of Jan-Dhan, Aadhaar and Mobile (popularly referred to as JAM) is fully adopted the time would be ripe for a mode of delivery [for a UBI] that is administratively more efficient” (p.174).
Analysis
In 2014, the Finance Ministry of India proposed the idea of the ‘JAM Trinity’: creating India’s largest financial database, with an aimed goal of 1.2 billion bank accounts that are linked to 900 million mobile phones and about 1 billion Aadhaar accounts. Two years later, they initiated the idea of an Indian UBI. An Indian UBI is especially appealing because of the weakness of India’s existing welfare programs and to help India’s numerous poor to fulfil their basic needs. Both the Aadhaar, Jan Dhan and mobile payments projects saw significant increases after Prime Minister Modi unexpectedly declared 500 and 1,000 rupee notes no longer legal tender on November 8 last year.
By bringing Modi’s ideal of a ‘less cash’ Indian society closer, his currency crackdown also boosted the idea of an Indian UBI that is distributed across India’s digital financial infrastructure
Financial inclusion – a prerequisite for the Indian UBI – has been both a demand and supply side challenge for India. On the demand side, the World Bank’s Global Findex database shows that few Indians make use of financial services: Indians used twice as few debit cards in the past year compared to the global average (six times as little compared to OECD countries), and twice as few Indians save at a financial institution compared to the global average (five times compared to OECD countries). These numbers even significantly worsen for rural, older and female Indians. There is a need for behavioral change if financial services are to be adopted.
On the supply side, Indian banks must find it more profitable to provide access to financial and banking services for all Indians. Currently, India has only 8 ATMs and 10 commercial banks per 100,000 adults, almost 4 times as low as the global average and 12 times as low compared to OECD countries. Furthermore, only 6% of Indians borrowed money from a financial institution (twice as low as the global average), and borrowed more often from informal lenders and friends or family.
However, as India’s digital financial infrastructure is developed there might be less need for traditional financial infrastructure, so that India can leapfrog its financial inclusion development. We already noted that India’s currency crackdown should be understood as a step in a larger plan to stimulate India’s digital financial system, and it seems that Modi’s ‘masterplan’ has worked out: the currency crackdown led to a surge in digital payments, bank deposits and savings accounts and a large stimulus for India’s fintech industry. By bringing Modi’s ideal of a ‘less cash’ Indian society closer, his currency crackdown also boosted the idea of an Indian UBI that is distributed across India’s digital financial infrastructure.
