Universal Basic Income (UBI)

Universal Basic Income is a periodic, unconditional cash transfer to every citizen in the country.

Here, the social or economic position of an individual is not taken into consideration.

The concept of universal basic income has three main features:

1. UBI is universal in nature, i.e., not targeted.
2. UBI is a cash transfer instead of an in-kind transfer.
3. UBI is unconditional. That means one need not prove his or her unemployment status or socio-economic identity to be eligible for UBI.

Pros:

• Alleviate poverty and help reduce inequality.
• Ensure economic security and dignity for all individuals.
• As human labor is being substituted by technology at a very fast pace, there will be reduced purchasing power. UBI will compensate for the reduced purchasing power.
• This will help us realize the true goal of economic liberty for every individual.
• Act as an insurance against unemployment.
• Help achieve economic equity.
• Employers will be forced to comply with good working conditions, as wage earners will not work in any bad conditions.
• As there is no need to specially identify beneficiaries due to its universal character, it is easy to implement for any government.
• It is argued that this will also reduce leakages in targeted welfare policies.
• Improves physical and mental health by reducing stress, anxiety, and depression associated with poverty and financial insecurity. It can also enable people to access better health care, sanitation, and nutrition.

Cons:

• UBI is very expensive and would require higher taxes, spending cuts, or debt to finance it.
• It could also create inflation, distort the labor market, and reduce economic growth.
• It decreases motivation to work and might reduce productivity and efficiency. It could also create a culture of dependency, entitlement, and laziness.
• It could also discourage people from acquiring skills, education, and training.
• It could contribute to inflationary pressures. If everyone receives a fixed amount of money, it may drive up prices for goods and services as businesses adjust their pricing strategies to capture the additional income available in the market.
• UBI may create a reliance on government support, and there is a risk that some individuals might become complacent or dependent on the basic income, leading to reduced motivation for personal and professional growth.

 

How will UBI work?

Though the UBI will be given to all citizens regardless of their income, only those with zero income will receive the full benefits in net terms. For those with additional income over their basic income, the net benefits will taper off through taxation.

This would drastically affect the current welfare state’s function. The government providing UBI through direct cash transfers would move away completely from service delivery. Their revenue generated from taxation and other sources will be transferred directly to individuals.

 

In the Economic Survey of 2016–17, the Chief Economic Advisor (CEA), Arvind Subramanian, proposed it as a “conceptually appealing idea." However, the current Chief Economic Advisor (CEA), V. Anantha Nageswaran, has disposed of it, stating that UBI is not necessary right now for India.

Nov 2023: Positive outcome of UBI highlighted through the 'WorkFREE' pilot project 2022 in Telangana

WorkFREE Pilot Project:

A collaborative efforts between the University of Bath, Montfort Social Institute, Hyderabad, and the India Network for Basic Income, with funding from the European Research Council.

Under the pilot, an adult gets ₹ 1,000 and a child ₹ 500 a month for 18 months.

The pilot supports 1250 residents in five slums in Hyderabad.

The WorkFREE pilot project is presented as a transformative initiative, highlighting the positive outcomes it has had on individuals and families.

Some of the residents in Telangana were adversely affected by the relocation and have found financial stability through UBI support. E.g., some used the cash support to start a bangle business and significantly improve their income.

The residents also used the cash to buy food, fuel, clothes, and pay utility bills, which usually account for the bulk of their monthly expenditures.

 

Other similar pilot projects:

In 2011, the Self-Employed Women’s Association (SEWA) a pilot project, conducted in Delhi and MP. In Delhi, about 100 families living below the poverty line received ₹1,000 a month.

 

Other Alternatives to Universal Basic Income:

Quasi UBRI: QUBRI is a variant of UBI, which is defined as a transfer that is provided universally, unconditionally, and in cash. The idea was proposed by the former Chief Economic Adviser to provide a direct cash transfer of ₹18,000 per year to each rural household in India, except those that are “demonstrably well-off,” to tackle agrarian distress.

Direct Benefits Transfers (DBT): This is a scheme that transfers subsidies or cash directly to the bank accounts of the beneficiaries instead of through intermediaries or in-kind transfers. DBT aims to improve the efficiency, transparency, and accountability of welfare delivery, as well as reduce leakages and corruption.

Schemes like PM Kisan, PM Jan Dhan Yojana, etc. are fine examples of the success of DBT.

Conditional Cash Transfers (CCT): This is a scheme that provides cash to poor households on the condition that they fulfill certain requirements, such as sending their children to school, immunizing them, or attending health check-ups. CCT aims to improve the human capital and long-term outcomes of the poor, as well as to incentivize behavioral change.

Other Income Support Schemes: These are schemes that provide cash or in-kind assistance to specific groups of people who are in need, such as farmers, women, the elderly, the disabled, etc. These schemes aim to address the specific vulnerabilities and challenges faced by these groups, as well as to promote their empowerment and inclusion.

Employment Guarantee Schemes: India already has a successful example of this with the MGNREGA. Such schemes provide a legal guarantee of employment to rural households for a certain number of days in a year. Expanding and strengthening such programs can ensure that individuals have access to job opportunities and can earn a livelihood.

Universal Basic Services: Instead of focusing on providing a universal basic income, India can prioritize the provision of essential services such as education, healthcare, clean water, and sanitation. By ensuring access to these services for all citizens, the government can improve the overall standard of living and reduce inequality.

 

UBI is not feasible in India.

Affordability: India is an emerging nation with a large population but limited resources. It may be very costly to provide a basic income to each and every citizen, especially at a level that is sufficient to meet their basic needs.

The Economic Survey of 2016–17 estimated that a UBI of Rs. 7,620 per year for every Indian would cost about 4.9% of GDP, which is more than the combined expenditure on food, fuel, and fertilizer subsidies.

To finance UBI, the government would have to either raise taxes, cut other spending, or increase borrowing, all of which have negative consequences for the economy and society.

Political Feasibility: India has a complex and diverse political system, with multiple levels of government, parties, and interest groups. It may be difficult to build consensus and support for UBI across different stakeholders, such as politicians, bureaucrats, beneficiaries, and taxpayers.

There may be resistance from those who benefit from the existing welfare schemes or from those who oppose redistribution on ideological grounds.

Implementation Challenges: India faces many challenges in delivering public services and transfers effectively and efficiently. There are issues of identification, targeting, delivery, monitoring, and accountability that affect the quality and reach of the existing programs.

UBI would require reliable data, technology, and institutions to execute it properly and avoid leakages, corruption, and exclusion errors.

Moreover, India has not achieved universal Aadhar enrolment yet, so it could be problematic in beneficiary identification and target-based delivery of service.

Behavioral Effects: UBI may have unintended or undesirable effects on the behavior of the recipients or society at large.

E.g., UBI may reduce the motivation to work or acquire skills, leading to lower productivity and efficiency.

It may create a culture of dependency, entitlement, or laziness among the recipients.

It may discourage people from participating in social or civic activities that contribute to the common good.