Nudging India – Using Behavioural Economics in Public Policy

Behavioural economic nudge theory upsc

Economic Survey 2019 has brought in the Behavioural Economic Theory that provides insights to “nudge” the people to make economically and socially desirable choices. This is in contrast to the stringent economic and political policies to change the social behaviour of the people.

What is Behavioural Economics?

  • The Behavioural Economics is the field wherein the psychological, social, emotional and cultural aspects are taken into account while understanding the economic behaviour of the individual and analysing the deviations of these choices from those that based on rational classical economics.
  • The study of Behavioural economics seeks to understand how market decisions are made and what aspects that drive the public choice.
  • This branch of economics gained tractions in recent years and has increased popularity among the policymakers after Richard H Thaler won Nobel Prize for his work on nudge theory in 2017.
  • Richard H Thaler has done extensive research in the field and published the work Nudge: Improving Decisions About Health, Wealth and Happiness.
  • The key principles of Behavioural Economics include:
  1. Focused emphasis on beneficial social norms
  2. Changing the default options through favourable policies
  3. Repeated reinforcements
  • According to the Organisation of Economic Cooperation and Development, approximately 202 government institutions are making use of behavioural economics in their policies.
  • According to the Economic Survey 2019, India needs to adopt the same for the social and economic development of the country.
  • The Chief Economic Advisor Krishnamurthy Subramanian has dedicated a full chapter of the Economic Survey for this field of economics for promoting the government’s social and economic policies.
  • The Economic Survey seeks to promote behavioural change at the ground level which in turn bring in the social change that ensures economic development.

What are the cases used in the Economic Survey to prove the success of Behavioural Economics?

  • The Economic Survey pointed out certain government policies brought in the social change in India. They are as follows:
  1. Swachh Bharat Mission: A UNICEF study, based on the ground reports launched on the World Environment Day 2019 lauded the Indian government for the Swachh Bharat scheme as it has reduced the groundwater contamination and soil contamination in the Open Defecation free zones. It is estimated that the rural sanitation coverage has crossed the 99% mark. This success is based on the behavioural change of the people at the ground level.
  2. Beti Bachao, Beti Padhao: It is a well-known fact that not all in the Indian society are rejoiced by the birth of a girl child. For hundreds of years, India has witnessed certain families either abandoning the girl child or going for female foeticide. Beti Bachao, Beti Padhao is a government campaign that seeks to do away with these evil social norms. This scheme seeks to make the girl child independent – both socially and financially through education, awareness and government welfare schemes.
  3. Jan Dhan Yojana: Pradhan Mantri Jan Dhan Yojana is one of the biggest financial inclusion schemes in the world. The Guinness World Record has recognized this scheme of its achievement for opening the highest number of bank accounts in a week. This scheme ensured that a platform is provided that allows for financial literacy, bank accounts for all and access to credit, insurance and pension facility. It also promotes transparency of the financial activities of the country and wider coverage of the government’s welfare schemes through online transactions.

Most probable and repeated topics of upsc prelims

How can Behavioural Economics be used in India?

  • The economic survey proposed social changes through behavioural economics on the following:
  1. From Beti Bachao, Beti Padhao to Beti Aapki Dhan Lakshmi aur Vijay Lakshmi (BADLAV).
  2. From Swachh Bharat to Sundhar Bharat
  3. From “Give it up” for LPG subsidy to “Think about the subsidy”
  4. From tax evasion to tax compliance
  • India is a country where culture, tradition and social norms play a very vital role in society.
  • In reality, the economic decisions of the individuals are driven by the social and cultural aspects of their surroundings.
  • The government, for achieving the social and economic change must bring in the behavioural change within the society through social engineering.
  • This is vital, especially for India as it is a nation with diverse culture and tradition.
  • In recent times, economists and policy-makers are making use of new policies called the nudge policies.
  • This is based on the nudge theory according to which the people’s behaviour is altered in a predictable manner without forbidding any of their choices.
  • According to this theory, people can be gently be nudged through policies to make the right choice.
  • These policies create certain leverages to influence positive behaviour of the individuals.
  • These policies can be used in the promotion of tax compliance, banning social evils, promoting eco-friendly infrastructures and technologies, promoting savings, promoting a healthy lifestyle, etc.

What are the limitations of this field?

  • It should be noted that Behavioural Economics is not the solution for all the economic problems of the country.
  • There are certain sectors where it was not successful.
  • Sometimes certain policies require stringent measures for it to become successful.
  • India is a country of diverse ideas, culture, and traditions. A common nudge from the Centre will have little to no impact at the local level.
  • Nudge policy is highly dependent on infrastructure and education. India faces serious inadequacy in both these aspects at the ground level.

Way Forward:

  • It is essential to bring forth creative and flexible nudge policies that respect the sensitivity of the diverse culture and traditions of India.
  • Greater spread of awareness, education, and infrastructure on par with the nudge policies are essential for the higher rate of success.
  • Policies incorporated with nudges have the potential to bring in the social change that promotes a positive outcome for the whole of Indian society.
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