Mains Practice Questions

Approach:

• Introduce the concept of UBI
• Highlight its potential economic benefits
• Delve into challenges associated with its implementation
• Mention careful considerations before implementing UBI
• Conclude suitably.

Introduction:

Universal basic income (UBI) is a social welfare concept where all citizens of a country receive a regular, unconditional cash payment from the government, regardless of their employment status or earnings.

• India, with its large population and significant poverty, presents a compelling case for exploring UBI.

Body:

Potential Economic Impact:

• Poverty Alleviation: UBI could provide a basic income floor, lifting millions out of extreme poverty. (Nearly 3.44 crore people are living in extreme poverty in 2024)
  • It could help address income inequality, which remains high in India (top 10% of the population holding 77% of the total national wealth)
• Economic Stimulus and Consumption: UBI could increase disposable income and boost domestic consumption, driving economic growth (Private Final Consumption Expenditure accounts for almost 60% of India’s GDP.)
  • It could stimulate demand in rural areas, benefiting sectors like agriculture and Fast-Moving Consumer Goods.
• Human Capital Development: UBI could improve access to education, healthcare, and nutrition, enhancing human capital and productivity in the long run.
  • Conditional cash transfer programs like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) have shown positive impacts on education and health outcomes.
• Promotion of Entrepreneurship: UBI could provide a financial cushion, enabling individuals to take entrepreneurial risks and start new businesses.
  • This could foster innovation, job creation, and economic diversification.
• Economic Empowerment of Women: UBI could empower women by providing them with financial independence and decision-making power within households.
  • This could lead to better outcomes for women and children, promoting inclusive growth.

Challenges Associated with Implementing UBI:

• Fiscal Burden: Implementing a comprehensive UBI program would require substantial financial resources, putting pressure on government finances.
  • For 2023-24, the government's fiscal deficit is estimated at 5.8% of the GDP, limiting the fiscal space for a large-scale UBI program.
• Implementation and Delivery Challenges: Identifying and reaching the intended beneficiaries, especially in remote and rural areas, could be a significant logistical challenge.
  • Existing schemes like the Public Distribution System (PDS) have faced implementation issues, which could be amplified with a UBI program.
• Inflationary Pressures: Injecting a large amount of cash into the economy through UBI could potentially lead to hyper-inflationary pressures, eroding the purchasing power of the income transfer.
• Disincentive to Work: A concern is that UBI could discourage people from working, especially for low-paying jobs. It could potentially discourage labor force participation, leading to labor market distortions and a decline in economic output.
  • Already, less than 20% of India's women work at paid jobs.
• Political and Social Considerations: Implementing UBI would require significant political will and public support, as it may face opposition from various stakeholders and ideological viewpoints.
  • Concerns about the sustainability and fairness of the program could arise, especially in a diverse and populous country like India.

Therefore, implementing UBI in India requires careful considerations like:

• Conduct pilot studies like in Delhi and Madhya Pradesh and rigorous impact evaluations to assess feasibility, challenges, and socio-economic effects.
• Undertake fiscal consolidation measures and explore alternative revenue sources to create fiscal space for UBI.
• Implement complementary policies and reforms in education, healthcare, skill development, and infrastructure to enhance UBI's effectiveness.
• Explore alternative approaches, such as Universal basic Services, Negative Income Tax or Conditional Cash Transfers, to address poverty and inequality.

Conclusion:

UBI holds considerable promise as a policy initiative, yet its successful implementation hinges on meticulous planning and a deep comprehension of the economic landscape specific to India, ensuring sustainable and equitable outcomes for all stakeholders involved.