Baba’s Explainer – Universal Basic Income

  • IASbaba
  • August 30, 2022
  • 0
Economics, Governance
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  • 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
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.

It’s a western concept where a high level of automation has resulted in high unemployment. The idea has been popularized by philosophers like Thomas Paine who argued that the resource of the earth is the common property of all.

In the Indian context, where every third person is poor, there are huge marginal and small farmers, and daily wage workers, who move in and out of poverty, the concept can be useful as a poverty alleviation measure in India. Also, the universality of the program avoids exclusion, and the bureaucratic burden of identifying beneficiaries and cash transfers will not be market distorting.

  • 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 the production and despite the particular circumstances into which they are born.
  • Economic Survey of India 2016-17 has advocated the concept of UBI as an alternative to the various social welfare schemes to reduce poverty.

The concept of universal basic income has three main features:

  • UBI is universal in nature. It means UBI is not targeted.
  • UBI is cash transfer instead of in-kind transfer.
  • 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.

UBI has 4 components:

  • Universality: It is universal in nature.
  • Periodic: Payments at regular intervals (not one-off grants)
  • Individuality: Payments to individuals
  • Unconditionality: No preconditions attached with the cash transfer
What are the advantages of UBI?
  • 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 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 the 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.
Why is there a Growing Debate Over UBI in India?
  • Since India has been focused on subsidies and transfer payments to help those who are below the poverty line, these form a part of a large chunk of budgetary allocation.
  • When we talk about these subsidy programs – they are fragmented, plagued by administrative leakages and encourage money to fill the wallets of the middlemen.
  • Subsidizing essential consumer goods, including food and fuel, compels the poor to consume those goods, regardless of quality or costs.
  • Replacing these subsidies with cash transfers would ensure, at the very least, that the recipients are getting the intended monetary benefit as well as freedom of choice.
What are the Arguments in Favour of UBI in India?
  • UBI will treat the beneficiaries as agents, and will allow them to use the money in the manner they see best, for their benefits. The Government will stand to respect, rather than dictate, individuals’ choices.
  • According to NSS 2011-12, there is a shortfall of allocation of welfare to poorer regions, and hence, there is lower per capita income in these regions as compared to other districts.
    • These direct transfers will ensure that there is no encroachment by the intermediaries and bureaucrats on the grants to be received by people.
  • An increase in income will help financially instable people to gain access to credit provided by banks, which was earlier constrained due to low levels of income.
    • It will release them from the sufferings produced by the moneylenders.
    • The JAM (Jan-Dhan, Aadhaar and Mobile)infrastructure can supplement the implementation of UBI and lead to greater efficiency and transparency.
    • The Pradhan Mantri Jan Dhan Yojana has been successful in opening more than 26 Crore bank accounts which will ease the procedure for direct transfer of the grant.
    • The Aadhaar and Mobile infrastructure can assist in maintaining identity records and easing transactions for individuals respectively.
  • The current labour market is terribly un-free because it relies on coercion, workfare, sanctions, draconian anti-labour legislation The introduction of Universal Basic Income would create a much freer labour market.
  • UBI will ensure that the people achieve basic capabilities in terms of health, education, and minimum income.
  • When government intervenes in the market to influence the prices, as in PDS, the outcomes are either unintended or less than optimal.
  • It is also expected that UBI will lead to expansion of economy’s output. Most existing welfare schemes in India are part of government’s transfer payments to the public.
    • the Pradhan Mantri Kisan Maan-Dhan Yojana (PM-KMY) and the PM-KISAN scheme is availed by about 120 million farmers. Atal Pension Yojana (APY) benefits 40 million people.
    • Pradhan Mantri Shram Yogi Maandhan Yojana (PM-SYM) has about five million beneficiaries while there are about 50,000 beneficiaries under the National Pension Scheme for Traders and Self-Employed Persons (NPS-Traders) scheme.
  • The largest unorganised sector income security programme is the scheme under the Mahatma Gandhi National Rural Employment Guarantee Act/ NREGS which has about 60 million beneficiaries.
What are the Arguments Against UBI in India?
  • The major concern with UBI is its fiscal implications.
    • It is estimated that a transfer of 10000 per capita per annum under UBI will cost around 10%of GDP to the exchequer whereas all current welfare schemes putting together costs only 5.2% of GDP.
  • There is a grave concern that UBI will distort the labor markets, as an easy income in hand received regularly by workers will discourage them to work.
  • The Patriarchal stereotype further highlights that the grant received will be spent by men on temptation goods such as tobacco, alcohol, etc.
    • This becomes crucial because where earlier the welfare programs allocated funds for different utilities, UBI will end up substituting utilities with temptation goods.
  • One unnoticed issue is that of inflation. While food subsidies are not subject to fluctuations in the market prices, the basic income is highly vulnerable to inflationary pressures.
  • In addition, the banking infrastructure density in the rural areas is very poor. Reports say that less than 60% of the Jan Dhan Accounts are linked with Aadhaar, which can lead to inconsistency in identification of individual.
  • There is also a fear that the scheme might be abused by the political class to win elections.

CASE STUDY: India’s Pilot Project, Madhya Pradesh

  • In 2011, SEWA, funded by UNICEF, conducted a pilot study of Universal Basic Income in 8 villages of Madhya Pradesh for 18 months.
  • Most villagers did not prefer subsidies (covering rice, wheat, kerosene, and sugar) as a result of the basic income experience. They chose cash transfers over subsidies.
  • Many people used the money to improve their housing infrastructure by building roofs and walls, toilets, etc.
  • This meant reduced number of diseases emanating from dirty surroundings, which indirectly reduces their expenditure on fighting such diseases. It was also reported that nutrition level improved, particularly among the Scheduled Castes (SCs) and the Scheduled Tribes (STs).
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.
What should be the Way Forward?

Though there are many valid concerns but with superseding benefits of better implementation, reduced corruption, reduced leakages, less administrative costs, less red-tapism, better targeting, improved social well-being, the UBI concept can certainly flourish in the Indian economy.

  • The practical difficulties need to be addressed first before policymakerstry to implement the complete UBI policy. As a solution, the introduction of UBI should be done in a gradual manner.
  • The policymakers must, therefore, evaluate all its pros and conswith accurate measures and statistics, before bringing this paradigm shift.
  • Focus should also simultaneously be on producing skilled youth thereby eliminating the very need for UBI.


Universal Basic Insurance

  • The other UBI, i.e. universal basic insurance, is also important.
  • The insurance penetration (premium as a percentage of GDP) in India has been hovering around 4% for many years compared to 17%, 9% and 6% in Taiwan, Japan and China, respectively.
  • Though the economy largely remains informal, data of that informal sector are now available both for businesses (through GSTIN) and for unorganised workers (through e-Shram).
  • This data can be effectively utilized until the Indian economy grows to have adequate voluntary insurance, thus social security can be boosted through the scheme of universal basic insurance.

Mains Practice Question –UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion. Discuss.

Note: Write answers to this question in the comment section.

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