Universal Basic Income

Universal Basic Income is an idea whose time has come. Universal basic income will be a form of social security in which all Indian citizens below the poverty line regularly receive an unconditional sum of money from the government. The amount may be as little as Rs2000 - Rs3000 a year, but that's a lot of free money in the bottom rungs of the income pyramid. Poor families are always destabilized due to their lives irregular cash flows and looming expenses. This will act as small cushion for critical times.

Why the time is ripe politically ? Demonetization has also created a disaster effect on Indian economy and market. Hence, NDA government has changed the demonetization narrative from one of fighting black money to bring about pushing for a cashless economy. NDA had prominently highlighted the issue of black money and had promised to bring it back in Lok Sabha election campaign. Universal Basic Income into Jan Dhan Account will be seen as commitment to a political agenda and a smart way to fight poverty.

There are two major school of thoughts under Direct Cash Transfer (DCT) - CCT and UCT. A comprehensive review of the evidence around cash transfers, Berk Ozler of the World Bank suggests that an unconditional cash transfer (UCT) can provide a critical foundation, on which policymakers can layer carefully designed, targeted CCTs to encourage specific outcomes, such as education or health behaviors. Unconditional Cash Transfer (UCTs) consist of cash grants with means testing to ensure funds go to the intended recipients, but without extra requirements on recipient behavior. Universal Basic Income comes into category of Unconditional Cash Transfer. Those who are further interested in the subject, this video does an excellent job:

While the number of Jan Dhan bank accounts opened as per the latest estimates stands at 26.03 Crore, reaching the last-mile user remains a problem and large number of dormant accounts. Only 14.43 crores of them are aadhar seed hence a verification and duplication is tough to avoid. But universal basic income will help banks to reduce current number (23.85%) of zero balance accounts. A 2013 CGAP report actually points that electronic Payments and social cash transfers in India can improve the business case for banks and agents.

Concept of universal basic income is utilized in developed countries currently. The available routine, process-oriented jobs job of people may be automated in a few years’ time due to the digital revolution, artificial intelligence and robotics. Finland has begin paying basic income to unemployed citizens. A recent research paper suggest that even done for short–term unconditional cash transfers (UCT) will create longer-term impacts.

Cash transfers are an effective, low-cost social protection tool, but they don’t on their own move people out of poverty. The cash transfers should not be seen as a substitute for state actions. There is always investment required in improving infrastructure for health services, education, skill training, and other social programs. The policy question remains still to be answered as universal basic income may sound great but questions remain over whether India can afford it. How much money can be termed as a true “basic” income for household? Should it be truly be both unconditional and universal? Can the program be tailored for more gender sensitive in nature? The debate has just begun and can be read at Livemint & Global dialogue. More time will be needed for individuals to understand how universal basic income will affect institutions, and their relevancy to their daily lives.

World Bank Report on Behavioral Economics

Humans in the real world behave in ways that are strikingly inconsistent with rational models based in economics. Bounded rationality, bounded self-interest and bounded self-control in human is a pure fiction, not a reality. With these assumptions, the profession of economics with its obsession with mathematical modelling has, over time, hopelessly removed from the complexities on the ground. Global Recession of 2008 was a jolt to the the neoclassical free market purists who were unable to predict market failure. The shock led to to the mainstreaming of behavioral economics. Behavioral economics is a subfield of economics that draws on the psychological, social, and cultural foundations of human decision making.

A Mckinsey report: Redefining Capitalism has summarized this quite good -  Over the past several decades, though, some of the bedrock assumptions of neoclassical theory have begun to unravel. Behavioral economists have accumulated a mountain of evidence showing that real humans don’t behave as a rational homo economicus would. Experimental economists have raised awkward questions about the very existence of utility; and that is problematic because it has long been the device economists use to show that markets maximize social welfare. Empirical economists have identified anomalies suggesting that financial markets aren’t always efficient. And the macroeconomic models built on neoclassical ideas performed very poorly during the financial crisis.

I have previously written on World Bank reports too in a grim sense. But this is different and big. Mind, Society, and Behaviour is a World Bank report of 2015 that will lead to major redesign in the field of Development Economics and Development Policy. The resource material is good for a detailed study and can be utilized as an example for a beginner as well as expert. As per Kaushik Basu, Senior Vice President and Chief Economist of the World Bank :"This Report distills new and growing scientific evidence on this broader understanding of human behavior so that it can be used to promote development. Standard economic policies are effective only after the right cognitive propensities and social norms are in place." (Source)

The report considers the importance of irrational and often unpredictable behavior in human decision making. It is based on theoretical and investigative work that comes with uncovering the underlying rhythms and rules of human behavior. The report stresses that focusing more closely on correctly defining and diagnosing problems with human element can lead to better designed interventions. The report applies the three principles to multiple areas, including early childhood development, productivity, household finance, health and health care, and climate change.

I will quote a passage of the report (page 22) for the glimpse: From the hundreds of empirical papers on human decision making that form the basis of this Report, three principles stand out as providing the direction for new approaches to understanding behavior and designing and implementing development policy. First, people make most judgments and most choices automatically, not deliberatively: we call this “thinking automatically.” Second, how people act and think often depends on what others around them do and think: we call this “thinking socially.” Third, individuals in a given society share a common perspective on making sense of the world around them and understanding themselves: we call this “thinking with mental models.”

Solving last mile challenges and Behavioural Change and The Making of Homo Honoratus: From Omission to Commission are examples of how behavioural quirks lead to success in the public policy. Economics without debates, politics or history is a dead mathematical exercise devoid of any intellectual and humane base. The past is already gilded with Locke, Bentham, Mill and Rawls. In the current age of techno-utopianism, the new star in town is Professor Daniel Kanheman. The transformation of Homo economicus to Homo sapiens has began.

Riddle of SHG Movement

Why SHG movement failed in *North-East India but successful in Kerala ? Kerala and North East are both quite high in literacy rate and women dominated society.  Even recently Tripura has become the most literate state in the country overtaking Kerala. This question was asked by a government officer in Ganjam district where I was deputed in my stint at Odisha Livelihood Mission.  The argument seems valid but I had three reasons for the failure now.

1. These are matrilineal societies, not matriarchal ones. Matriarchy is not just about descent and inheritance being traced through the female line. The matriarchal system means a system where women have power in “all activities relating to allocation, exchange and production, as well as socio-cultural and political power." When descent and inheritance are traced through women it’s called a matrilineal system. Matrilineality is only a sub-system of matriarchy and the power in the social power structure remain in the hands of male only. Traditionally, it was communities like the Nairs, Ezhavas and Warriers in Kerala & it’s the the Khasi, Jaintias and Garo tribes (majority of the population of Meghalaya) who practice or used to practice this system. For more about women in North East, please read Status of Women: North Eastern Region of India versus India by Dr Ira Das

2. Population Density is the biggest difference between them. Kerala is home to 2.76% of India's population; with a density of 859 persons per square km, its land is nearly three times as densely settled as the Indian national average of 370 persons per square km. [Reference] This is the major reason as sparse population in the hilly region create a high operational cost and challenges in the last mile connectivity in North-east India.

3. Lack of penetration of financial services is the major reason behind failure of SHG drive. There are only 2.3 per cent of total account in Northeast India.while the maximum no of 27.44 per cent of total account in South India. Read more Financial Inclusion in India:A Brief Focus on Northeast India. Stronger presence of MFIs in the Assam and Tripura helped reduce the disparity but there is a long way to go.

4. In a region ravaged by conflict, business as usual is no longer an option. The political risk due to constant terrorist and insurgent activities with AFSPA have also led as a major hindrance for investment in infrastructure. There has been chaotic process of creating a peaceful state, an economy and a workable political settlement from the violent, corrupt, and poverty-ridden area shows the development process in all of its historical reality.

The picture with inclusion in the development emerges is of increasingly nuanced collaborations and partnerships: business-state, business-society, and between formal and informal business. The promise of financial inclusion in India has been for long time but has never materialised.The Reserve Bank of India is navigating the path to financial inclusion by means of regulations and guidance. RGVN (North East) Microfinance Limited, the only micro-finance company from the region to be selected by the RBI to set up a small bank. The development of financial services will also be a source of growth in North East in the future.

*The Northeast India comprises of contiguous eight states of Arunachal Pradesh, Assam, Nagaland, Manipur, Meghalaya, Mizoram, Tripura and Sikkim - is geographically, ethnically and culturally different from the rest of the country.

HR Policy in Development Sector

Incentives, capacities, norms and professional identities of the organization are the reasons behind success or failing in branding. Brand name is also created mostly by network of ex-employees, partners and vendors. Hence, managing human capital and relationship becomes key in creating brand value. There comes the massive role of HR Manager in the mapping the environment to identify : Unique Employee Allegiance Proposition & Distinctive Competitive Advantage.

Why people switch organization? The answer to the question is same for each sector & development sector is no anomaly. Most Companies/NGOs have tendency to neither invest in the people nor provide mentors for the career guidance. This led to migration of the talented people who have quality of leadership. The mutual trust deficit leads to an organization which will be optimized to hire and keep people who merely want the next job. When organization sees people as true assets,they empower them with knowledge.

I always like the advice of Simon Sinek:When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.Massive HR problems are the dirty secret of a social sector. There is no talent crunch but mismanagement of human resource in Indian social sector. There is a good article on challenges of human resource in development sector in India.

Limitations of HR Manager in development sector:

1. Usually Indian NGOs are entirely one man show and thus giving massive issues of employee grievances to HR. The centralized decision making leaves HR quite toothless in the overall decision making process. In the board meetings of a national level NGO taking place in an AC conference hall, the focus is never on HR policies.

2. The budget and time constraint lead to HR going for the safe route for seeking the degree and relevant experience in job profile. The recruitment ends up with people who are merely good enough without probing fit of new employee into organization culture. Nobody in HR ever got fired for hiring MBA guy in India. When faced with the prospect of failure, HR seeks protection by hiding behind the brand name.

3. HR Manager in NGOs has literally no say in serious issues like gender ratio and the glass ceiling of the organization. They have maximum set targets for recruiting female front-line staff and lower management positions.

4. It's unreasonable to find someone truly talented to switch to your organization with brand name and low package only. Even with limited budget in the NGOs, an organization seldom improve quality by cutting costs, but can often cut costs by improving quality of the workforce.

5. Sometimes current employee don't understand the dynamics of a hiring, they don't understand why certain new employee have been recruited for so much money and why someone else has gone for such less. HR Manager has to unearth and address such insecurities with proper communication.

Recruitment Strategy:

1. Staffing skills and requirements have already altered rapidly in line with the growth of technology and social media but is expected to become more fluid in terms of cross-organisational collaboration with PPP mode, P2P ventures & even CSR activities. The old strategy of recruitment with lowest bidder will always be misleading in case of innovative projects.

2. A good recruiter scout first for competent person with potential and then for professionals. That comes with the experience and people management. Scratchy knowledge of the sector and human behaviour can lead to poor people choice in filtering process.

Whenever a good manager recruits, the single question to be looked:“Is this person likely to replace me one day?” And if the answer is yes, that’s the sort of person an organization want. Further, the top management has to do everything possible to make sure such careers flourish and vision of organization is fulfilled by new recruit.

3. There's a great danger when it's all about process - students getting into the MBA, then smoothly into the high profile job. Sometimes what's important is to get the late developer, or the guy who's just missed out or has taken unconventional path. The guys who've gone out the profession due to personal reasons and are desperate to get back in - they just want to devote the skills. They're there for all the right reasons. The brownie point for HR, they don't even talk about money sometimes.

Retention Techniques:The tough part is retention of employees. Best place to work organization always ensure this parameter to be one of pillars in building organization

1. A Harvard study suggests that the key to sustaining loyalty in employees is making sure they get to do the things that are most important to them outside of work. The regular one to one communication with all, flexibility in hours, non monetary rewards, appreciation from top management matters most for an employee.

2. It's unreasonable to expect that you'll develop amazing people when you don't give them room to change, grow and fail. It takes a very self assured person to compliment talent of others. An insecure top management scavenges on the failure of new recruits and create negative environment in the organization.

3. Leadership that grooms only frugal, non-confrontational and smooth-tongue employee will always have succession problems. HR job is to ensure diversity in the management and as well as workforce. Talent management is not about social standing in organization but inspiring employees to on own strength and performance. Sharp analysis and straight talk promotes reform in the all type of organization. Hence, a culture of praise closes the feedback loop for HR only and best of talent slips away to other firm discreetly.

It's a tricky work being HR in the development sector as criticizing the organisation is very easy but correcting the course without any support from top is much difficult. HR ends up either looking after employees or an organization in long term. The latter is the majority phenomena. It’s a nice idea to change a system from inside. It just happens to be untrue with time. An established structure will change one before one can change it. Accomplishing all three objectives – quality, quantity, and cost efficiency – simultaneously is difficult, and the likelihood of compromise is great.

In the figment of public imagination, development sector is staffed entirely by self-sacrificing and below market standard worker bees. I would term worker bees as "Development Mujahideen" who have given any decent wages and working in remote location for universal betterment. It is still assumed that social work is a sector for people who could not do anything else in life. And that the sole aim of good students is to become rich for personal gains. There is a lot of suppressed frustration in the professional of this sector. I had once urged my friend,Manu Bansal to ventilate the frustration through words and please read the personal anguish in blog post with a pint of beer.

Demonetization & Rural economy

In the mid 1960s, India faced a severe food shortage (mainly in Bihar) and nearly escaped from a major famine. Prime minister Lal Bahadur Shastri started lots of policy initiatives to curb food shortages and such initiatives in turn paved the way of Green Revolution. When India was throttled again economically in 1990, and that's what changed the country forever. The opinion of researcher Suyash Rai at the National Institute for Public Finance and Policy and Wharton School at the University of Pennsylvania on black economy is required to understand the depth of the situation.

The announcement of demonetization of Rs 500 and Rs 1000 notes came on 8th November 2016. Problem in rural economy had appeared as Kharif harvest is sold in hard cash, an investment is required for Rabi season and marriages in community will happen in this time of year. Farmers, landless labourers, domestic servants, pensioners, small traders, all these and many other groups have taken a terrible hit  First, there is huge liquidity crunch in the informal and rural sector. The effects is felt by both supply and demand side.

The MFI industry is a cash intensive with its large network base of 3.2 crore clients in India. Most of the borrowers take loans in cash and they repay loans in cash. MFI operations will be most affected due to this decision as there are for lot of women with loans between Rs 10000 to Rs 50000. The disbursements will be delayed and collections drops can lead to situation of operational paralysis in the rural sector. Even then fight for market share could lead to weakening of credit appraisal standards for achieving required sales target. Such conditions for the failure of the industry to defer payments temporarily will be milked by political class. MFI sector has already shown relative slowness towards going ‘cashless’. This can be attributed to fact that India is among the most cash-intensive economies in the world with a cash-to-GDP ratio of 12%, almost four times as much as other markets such as Brazil (3.93%), Mexico (5.3%) and South Africa (3.73%) .

There is huge requirements of seeds, fertiliser and pesticides for Rabi season. The farmer will be forced to buy on credit or take loan from informal credit sources at exorbitant interest rates. Even with decent monsoon rains, the farmers is willing to invest heavily this year as they were hit by drought in 2014 and 2015. Government has allowed withdrawal limit to Rs 25000 for the farmers but this will not solve problem as rural banks are already overloaded with responsibilities of exchange. Many people simply do not have active bank accounts and even ATMs are working under capacity.  A lot of housewives, artisans, and workers may have cash lying with them at home. This isn't part of hoarded illegal money but a traditional way of saving money for women without seeking permission from husband or other family members. This little amount, concealed from everyone, usually grows as time passes and is used in the time of needs. This revelation isn't "small price to pay" and can't be termed as collateral damage in fight against black money. This kind of policy debate ignoring women leads to is a less empathetic society .

The chaos spread in this time will be used by black money hoarders in rural areas too. The illegal exchange of currency notes with lesser monetary value notes will be the first move of brokers. Brokers will use KYC of common man for siphoning of money into Jan Dhan Accounts of illiterate populace for small time. The main challenge will be of cash logistics for banks in far and remote places. Rural economy will be forced to run on deferred payments and barter system for few months. Rice, wheat and other staple crops will be used as exchange currency. The slowdown of economy will wipe out a large number of small entrepreneurs from the market. There is an urgent need to tackle middleman-transporter nexus in this scenario that has always dominated rural marketplace. The issue with farm in India is not that farm income is exempt from tax but farmers don't even have to report it. The small traders in villages have agriculture land holdings and always can show the illicit wealth as farm income.

The short term effect will be slowdown of economy and hence a reverse exodus of labour will happen in upcoming months. NREGA expenditure must be increased in this financial years as there is lot of rural populace who have no asset base and mainly depend on wage labour as their primary source of income. MNREGS, ICDS and even NRHM are only source of livelihood for many women in an already crippled rural economy, with little avenues for non-agrarian work is fast depleting with the effect of demonetization.

The long term effects of this policy decision will surely lead to both innovation and protest. Most labour intensive businesses (such as tea-gardens, factories, transporters, cab services, construction and civil engineering works and so on) pay wages in cash. There will be impact on the mode of payment in near future. There will be promotion of financial transactions using digital, paper-less modes like mobile money, mobile wallets, debit cards, ATMs, and ePOS machines. MFI sector is focused on credit and maybe some insurance with , while the m-banking world is focused on transfers and payments with sophisticated back end systems. There will be convergence between them to avoid such situation again. MFI, customer and banks will ultimately move towards unison as a part of the financial inclusion drive of the government.

Reform is often waylaid by hidden priorities and even slow when implemented fairly. There is always unwanted effects due to complex nature in rolling out any new scheme. Structural reform in 90's have proven this mantra and the long term actions taken in cleansing financial sector by current government is no exception. There was always an urgent need to have radical changes keeping ten years time ahead. A strategy can't be sought with incremental thinking by the state. RuPay, Payment banks, Demonetization, Aadhar Cards & Jan Dhan Yojna has brought up winds of disruption and innovation through technology, regulations and government action, will fundamentally alter the banking sector. The future will belong to those who show speed, imagination and the boldness to embrace change towards cashless economy and targeting BOP clientele.

Still, I will argue that a rationally argued cause-and-effect connection within the limits of the evidence is required from experts, as it is essential to investigate facts while debunking fantasy element spread in social media. India has to understand and address positive changes, failures and externalities of demonetization drive in rural economy.