Eco survey urges behavioural economics nudge for socio-economic goals

The branch of economics has gained traction in policy making recently, becoming more popular after economist Richard H Thaler, known for his work on 'Nudge' theory, won Nobel in 2017

From reminding citizens of religious tenets to make them repay their debts and not willfully default on their loans, to improving efficacy of government’s social programmes, such as financial inclusion, the Economic Survey lay great emphasis on government deploying Behavioural Economics as a tool to improve outcomes.

The branch of economics has gained traction in policy making over recent times, and acquired yet more popularity after economist Richard H Thaler, noted for his work on ‘Nudge’ theory, won the Nobel Prize for Economics in 2017.

The chief economic advisor of the government, Krishnamurthy Subramanian, dedicated a chapter to utilising insights from this branch of economics in furthering government’s social and economic objectives.

He noted that the government had already deployed the concepts and principles of behavioural economics to get better results out of some of its social schemes, such as Swachh Bharat Abhiyan and Beti Bachao Beti Padhao. Subramanian said the same could be leveraged across a spectrum of social, economic and political arenas – from increasing tax compliance, to get people to surrender subsidies, to influence policy-makers and politicians to take tough economic decisions.

On deploying behavioural economics to improve tax compliance, the survey recommended changes in automatic deduction of taxes as default options to public shaming of individuals who do not pay taxes and tax withholding followed by refunds at the time of tax filing.  

The survey said, “Repayment of debt in one’s own life is prescribed as necessary by scriptures across religions. Given the importance of religion in the Indian culture, the principles of behavioural economics need to be combined with this “spiritual/religious norm” to reduce tax evasion and wilful default in the country.”

The survey suggested ‘nudges’ and consistent messaging across the spectrum of government’s socio-economic agenda to get better results. This included people being made to make deposit contracts to achieve goals of weight loss and ceasing to smoke and auto enrolment of citizens to saving schemes to improve financial inclusions. The survey recommended that, “every program must go through a “behavioural economics” audit before its implementation.

The Survey served the successful implementation of the scheme as proof of how ‘nudging’ citizens to choose against open defecation and high-use of toilets worked well.

The survey said that the national sanitation coverage in rural areas went up to 93 per cent in 2018-19 from around 40 per cent in 2014-15 as the campaign emphasized a beahavioural change against open defecation.  Though, this is also the period over which funds allocated for SBM increased manifold from Rs 2,850 crore in 2014-15 to Rs, 16,948 crore in 2017-18.

“The fear of community scorn, or a desire to fit in, or both, have led many to renounce open defecation. appealing to people’s emotions, for example by attaching a sense of disgust to open defecation has a better chance of moving people to change,” the survey said.

The economic survey elaborated how over 500,000 foot soldiers one for each village leveraged their social ties to effect change. “People are more likely to listen to and emulate someone they know.”

The survey said that the success of the scheme was dependent not only on the infrastructure created but also on the resultant behavioural change and the associated changes in the patterns of toilet usage by individuals.

Financial savings from a household toilet exceed the financial costs to the household by 1.7 times, on average and 2.4 times for poorest households, according to the survey.

The authors of the survey did note that “Behavioural economics is, however, not a panacea to policymaking; its potential needs to be understood and put in perspective. Nudge policies cannot and should not supplant every incentive-based and mandate-based policy….However, the majority of public policy issues are amenable to incorporating nudges.”