Universal Basic Income

Today, disruptive technologies like Artificial Intelligence are ushering in productivity gains that we have never seen before. They are also steadily reducing human capital requirements, making jobs a premium.

Universal basic income (UBI) is considered a solution to the looming crisis of decreasing job opportunities and an effective tool for eradicating poverty. The idea of UBI has gained popularity, especially in light of the Covid-19 pandemic.

India's rapid expansion of direct cash transfers linked to the national biometric database and small experiments with basic income have sparked the debate about universal basic income (UBI).

The supporters believe that no-strings-attached payments can help India's underperforming antipoverty programs and distorted subsidies, but critics fear that they will undermine an already fragile social security system, cause workers to leave the workforce, and encourage wasteful spending.

What is Universal Basic Income?

• Universal basic income (UBI) is a socio-political financial transfer policy proposal in which all citizens of a given country receive a legally stipulated and equally set financial grant paid by the government.
  • A basic income can be implemented nationally, regionally, or locally.
• A Universal Basic Income is unconditional. It requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.
• In 2016, the idea of a Universal Basic Income in India made huge news by taking up over 40 pages in the 2016-2017 Economic Survey of India as a serious and feasible solution to India's poverty and a hope for the healthy economy as a whole.
  • Economic Survey of India 2016-17 highlighted that “UBI liberates citizens from paternalistic and clientelist relationships with the state”
• UBI has mainly 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

Why is There a Growing Debate Over UBI in India?

• India has depended on subsidies and transfer payments to help those at the bottom of society.
  • Various programmes sponsored by the Central government account for a large chunk of budgetary allocation.
• A large number of these programmes are fragmented and plagued by administrative leakages. Taxpayers' money often ends up lining the pockets of middlemen.
• Additionally, subsidising essential consumer goods, including food and fuel, compels the poor to consume those goods, regardless of quality or costs.
  • Corruption and Waste in India’s Public Distribution System is endemic.
• 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?

• Social Justice: No society can be just or stable if it does not give all members of the society a stake. A Universal Basic Income promotes many of the basic values of a society which respects all individuals as free and equal.
  • UBI is a radical and compelling paradigm shift in thinking about both social justice and a productive economy.
• Administrative Efficiency: A UBI will reduce the burden of financing a plethora of separate government schemes and administrative burden of implementation.
  • The UBI, by design, should effectively tackle issues related to misallocation and leakage because transfers are directed straight to the beneficiaries’ bank accounts.
  • Finally, given the fewer avenues for leakages, monitoring a UBI would be easier than many other schemes.
• Employment: UBI is an acknowledgement of the government’s duty to guarantee a minimum living standard ( Article 43 of Indian Constitution) is even more urgent in an era of uncertain employment generation.
  • Moreover, UBI could also open up new possibilities for labour market.
  • They allow for more non-exploitative bargaining since individuals will no longer be forced to accept any working conditions, just so that they can subsist.
• Insurance Against Shocks: Poor households often face multiple shocks such as bad health, job loss or aggregate shocks such as crop loss, water borne diseases, loss of property and natural disasters.
  • The UBI income floor will provide a safety net against health, income and other shocks.
• Freedom of Choice: A UBI treats beneficiaries as agents and entrusts citizens with the responsibility of using welfare spending as they see best, this may not be the case with in-kind transfers.
• Improvement in Financial Inclusion: Payment transfers will encourage greater usage of bank accounts, leading to higher profits for banking correspondents (BC) and an endogenous improvement in financial inclusion.
  • Credit increased income will release the constraints on access to credit for those with low income levels.
• Women Empowerment: In 2011, a pilot study of Universal Basic Income was conducted in 8 villages of Madhya Pradesh for 18 months.
  • Reviewing the UBI trial in India (2013-2014), SEWA Bharat and UNICEF concluded that “women’s empowerment was one of the more important outcomes of this experiment,”
    • Women receiving UBI participated more in household decision making, and benefited from improved access to food, healthcare, and education.

What are the Arguments Against UBI in India?

• Higher Government Expenditure: If UBI is universal, which means all citizens, regardless of their financial capacity, are by default beneficiaries will widen the existing rich-poor gap in India.
  • Adopting a universal approach in India would result in higher government expenditure as it will have to ensure that no citizens are excluded.
  • Once introduced, it may become difficult for the government to wind up a UBI in case of failure.
• Conspicuous Spending: UBI is not tied to the recipients’ behaviour, and they are free to spend the money as they wish. Households with lack of awareness about fiscal management may spend on wasteful activities.
  • There is no guarantee that the given cash will be spent on productive activities, health & education, etc. It may be spent on tobacco, alcohol, drugs, and other luxury goods etc.
• Reduction in Labour Force: A minimum guaranteed income might make people lazy and opt out of the labour market.
  • In the absence of any reciprocal exchange, UBI in India may easily turn into a scheme that renders the working age adults as supplicants and without any real purpose or direction in their lives.
• Increase the Rate of Inflation: Replacing things like food programmes with UBI might expose the population to more market risks and inflation.
  • Price fluctuation will affect the purchasing power of the consumers.
• Lack of Connectivity Channel Between Government and Beneficiary: In India, the poorest live in mostly remote areas and lack recourse to banking and often mobile phones is a major concern.
  • Not all habitations have been covered by the banks and a lot of time and energy is spent in accessing banking services physically.
    • Economic survey also points to JAM (Jan Dhan, Aadhar and Mobile) system as a prerequisite for a successful UBI implementation.
• Federal Challenge: Centre-State negotiations on cost sharing for the programme could delay its implementation.
  • Since Indian states are at different levels of development, maintaining a uniform financial transfer will be challenging.

What should be the Way Forward?

• Food for Thought: UBI is a powerful idea whose time, even if not ripe for implementation, is ripe for serious discussion.
  • Many pilot projects on UBI across the world including the one in Madhya Pradesh have shown positive results and highlighted the benefits of direct income transfer in improving the welfare of poor people.
    • This can be a matter of scrutiny before reaching any conclusion.
• Quasi-Universal Basic Income: It would be more prudent to take a middle road. The government should retain existing in-kind programs that deliver necessities and enhance one’s quality of life, such as food security, healthcare, sanitation, and education.
  • Once it demonstrates, over time, that it has built a stable system for income transfers, it could revisit the policies towards UBI.
• Future of UBI Across the Globe: 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 globalisation, technological change, and automation.
• Universal Basic Infrastructure/Insurance: Rather than jumping to UBI, focus should be on improving basic infrastructure and accessibility to insurance.
  • “If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime”. Effective education system will produce skilled youth and eliminate the need for UBI.

Drishti Mains Question Can Universal basic income (UBI) be an effective tool for eradicating poverty from India? Critically analyse.