Universal Basic Income

What is Basic Income?
  • A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement.
  • It is a form of minimum income guarantee that differs from those that now exist in various European countries in three important ways:
  1. It is being paid to individuals rather than households;
  2. It is paid irrespective of any income from other sources;
  3. It is paid without requiring the performance of any work or the willingness to accept a job if offered.
  • It is based on the principles of universality and unconditionality.
Why it is good?
  • It is Universal and not targeted. In the Indian context, this makes sense because of the less-than-satisfactory experience with targeting welfare services. This would not only be more appropriate, it will also reduce the burden of the bureaucracy in so far as it is engaged in identifying the deserving beneficiaries of any targeted programme
  • Another important feature is cash transfer in lieu of in-kind transfer. There are standard arguments in favour of cash transfers over in-kind transfers (food stamps or grains provided through the Public Distribution System) as they are supposed to be much less market-distorting than in-kind transfers
  • UBI is unconditional. Cash transfers are not tied to exhibiting certain behaviour, and the people are free to spend the cash as they want. An example of conditional in-kind transfer in India would be the mid-day meal scheme, where the meal—an in-kind transfer—is conditional upon attending school
Why it is bad?
  • It would reduce the motivation for work and might encourage people to live off assured cash transfers.
  • It is simply unaffordable. As it is estimated paying a basic income equivalent to the poverty line, to each and every adult in India, would entail a cost of 11% of GDP, which is way above the 4.2% of GDP that the government currently spends on explicit subsidies.
  • It is also argued that unconditional cash transfers might raise wages due to the decline in the supply of casual labourers.
  • There is also question of whether a shift towards it should be a substitute for all existing subsidies or whether it should complement the existing ones
What is needed?
UBI alone is not sufficient for the overall upliftment of poor. Two distinct sets of reforms are needed:
  1. Broad-based economic reforms that would strengthen entrepreneurship, remove barriers to job creation, and increase the returns to human capital investments by the poor.
  2. Specific reforms to allow the poor to gain better education and health
What does Economic Survey says on UBI?
  • ES advocated for the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty.
  • It suggests that a more efficient way to help the poor will be to provide them resources directly, through a UBI.
  • It will be an efficient substitute for a plethora of existing welfare schemes and subsidies.
Why ES say so?
  • Promoting social justice, reducing poverty, unconditional cash transfer that lets the beneficiary decide how she uses the money, employment generation by promoting labour flexibility.
  • It will bring in administrative efficiency as a direct cash transfer through JAM (Jan Dhan-Aadhar-Mobile) platform.
  • It will be more efficient as compared to the “existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor.
  • It can help to achieve considerable gains in terms of bureaucratic costs and time by replacing many of these with a UBI
Is UBI idea new to India?
  • The basic idea of Universal Basic Income is not new for India
  • The erstwhile Planning Commission had worked on it in the early 1960s
UBI can create distortions in the labour market:
  • A steady, permanent and guaranteed income without any work is likely to affect labour mobility and participation
  • It is also likely to increase wages, as has been witnessed after the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act
  • Problem: Higher wages without a commensurate increase in productivity will affect India’s competitiveness
  • This could also have longer-term implications in terms of higher inflation and lower growth
Way Forward:
  • India needs rationalization of subsidies, better targeting and operational efficiency
  • It needs to move to cash transfers at an accelerated pace with the use of Jan-Dhan, Aadhaar and mobile
  • This will help reduce costs and spare resources for capital spending to augment growth
  • As history has shown, the best way to pull people out of poverty is sustained higher growth