Universal Basic Income

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TOPIC: General Studies 2

• Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
• Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and bodies constituted for the protection and betterment of these vulnerable sections

In News: Sikkim’s ruling Sikkim Democratic Front (SDF) has decided to include Universal Basic Income (UBI) in its manifesto for the upcoming assembly and Lok Sabha elections. The state has already begun the process of introducing the unconditional direct cash transfer scheme and is planning to implement the same by 2022. It could become the first state in India to implement UBI.

Background: The 2017 Economic Survey had advocated implementation of UBI as an alternative to the various social welfare schemes in an effort to reduce poverty. The Survey said, “UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion.” However, Finance Minister Arun Jaitley in June 2017 said the scheme as proposed in the Economic Survey will not be politically feasible in today’s India.

What is Universal Basic Income?

Universal basic income (UBI) is a model for providing all citizens of a country or other geographic area with a given sum of money, regardless of their income, resources or employment status.

Purpose of the UBI: To prevent or reduce poverty and increase equality among citizens

Underlying principle: Basic income is the idea that all citizens are entitled to a livable income, whether or not they contribute to production and despite the particular circumstances into which they are born.

The idea and its appeal

While India has made considerable progress in bringing down poverty from about 70% of the population at the time of independence to about 22% in 2011-12 (Tendulkar Committee estimates), the effectiveness of the targeted schemes run by central and state governments have always been in question. Studies and government audits reflect the data manipulation and leakages that characterise the system, with the poor and deserving crowded out of BPL card ownership and the rich reaping undeserved benefits. Targeting is seen as being both inefficient and inequitable, a licence for corruption that has spawned an entire industry of middlemen.

UBI envisages an uncompromised social safety net that seeks to assure a dignified life for everyone, a concept that is expected to gain traction in a global economy buffeted by uncertainties on account of globalisation, technological change, and automation.

The concept of universal basic income has three main features:

• UBI is universal in nature. It means UBI is not targeted.
• The second feature of UBI is cash transfer instead of in-kind transfer.
• The third feature is that UBI is unconditional. That means one need not prove his or her unemployment status or socio-economic identity to be eligible for UBI.

As a form of social security UBI will help in reducing inequality and eliminating poverty. Thus it ensures security and dignity for all individuals. As human labour is being substituted by technology, there will be reduced wage income and reduced purchasing power. UBI will compensate for reduced purchasing power.

What would UBI mean to the Government?

There would be drastic changes in the way government spends its revenue generated from taxation and other sources. Currently, Government spends its revenue on various services as well as on subsidies. UBI would mean that government may move away from service delivery and empower its citizens to access services through cash transfer.

What are the advantages of UBI?

• First, UBI would strengthen economic liberty at an individual level; would help them to choose the kind of work they want to do, rather than forcing them to do unproductive work to meet their daily requirements.
• Universal Basic Income would be a sort of an insurance against unemployment and hence helps in reducing poverty. It will result in equitable distribution of wealth.
• Increased income will increase the bargaining power of individuals, as they will no longer be forced to accept any working conditions.
• Because of its universal character, there is no need to identify the beneficiaries. Thus it excludes errors in identifying the intended beneficiaries – which is a common problem in targeted welfare schemes.
• As every individual receive basic income, it promotes efficiency by reducing wastages in government transfers. This would also help in reducing corruption.
• Considerable gains could be achieved in terms of bureaucratic costs and time by replacing many of the social sector schemes with UBI.
• As economic survey points out, transferring basic income directly into bank accounts will increase the demand for financial services. This would help banks to invest in the expansion of their service network, which is very important for financial inclusion.

What are the main arguments against UBI?

• A guaranteed minimum income might make people lazy and it breeds dependency. They may opt out of labour market.
• There is no guarantee that the additional income will be spent on education, health etc. there are chances that the money will be spent on ‘temptation goods’ such as alcohol, tobacco, drugs etc.
• Given the large population size, the fiscal burden on government would be high. Also, as Economic Survey 2016-17 noted, once implemented, it may become difficult for the government to wind up a UBI in the case of failure.
• If the UBI is funded by higher taxes, especially by the indirect taxes, it will result in inflation. This, in turn, will reduce the purchasing power of the people and lowers the value of the amount transferred.
• A ‘guaranteed minimum income’ might reduce the availability of workers in some sectors which are necessary but unattractive and raise the wages of such works. For example, the wages of agriculture labour might increase due to non-availability of workers willing to work in others’ farm.

What are the challenges that may face in Implementation of UBI?

• According to World Bank, in India, there are only 20 ATMs for every one lakh adult population. Nearly one-third of the Indian adults remain unbanked. With such a state of financial service infrastructure and financial inclusion, it would be difficult for the people to access their benefits.
• Financing the ‘guaranteed minimum income’ would be another challenge. There are chances that UBI would become an add-on to existing subsidies rather than replace them.

Conclusion

• Despite making remarkable progress in poverty reduction, nearly 22 percent of the population lives below poverty line (Tendulkar committee report, 2011-12). One of the major criticisms of poverty alleviation programmes is significant leakages. UBI is seen as a more efficient alternative.
• Though UBI has many advantages, there are many practical challenges too. A transparent and safe financial architecture that is accessible to all is important for the success of the UBI. In other words, the success of UBI depends on the success of efficient mode of delivery like JAM Trinity.
• Also, a behavioral change on the part of account holders needed so that they use their accounts more often. Banks need to find it profitable to provide access to banking services.

Connecting the Dots:

1. UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion. Discuss.
2. Discuss the merits and challenges associated with ‘Universal Basic Income’.