Universal Basic Income
#GS2 #Governance #UBI
In its report on human rights in India, the National Human Rights Commission (NHRC) has informed the United Nations Human Rights Council that the recommended implementation of a universal basic income was “under examination and active consideration” of the Centre.
What is Universal Basic Income (UBI)?
- 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:
- It is being paid to individuals rather than households;
- It is paid irrespective of any income from other sources;
- It is paid without requiring the performance of any work or the willingness to accept a job if offered.
Main features of UBI
- 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.
Arguments in favour of UBI
- A large proportion of the population in India still lives below the poverty line and a number of government programmes providing subsidies and support to the poor are marred by inefficiencies. There are leakages in the system, and often, people who actually need government support are left out. Therefore, it is argued that Universal Basic Income will overcome these problems by providing a basic income to all citizens.
- The 2016-17 Economic Survey argued that Universal Basic Income is “…more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains”.
Arguments against UBI
- First, the biggest issue is that India doesn’t have the fiscal capacity to implement Universal Basic Income. For example, the Economic Survey calculations showed that a 75% universality rate with an annual Universal Basic Income of Rs7,620 per year at 2016-17 prices will cost about 5% of the GDP.
- Second, Universal Basic Income can create distortions in the labour market. A steady, permanent and guaranteed income without any work is likely to affect labour mobility and participation.
- Third, the nature of Indian politics can create complications. It is highly likely that political parties, in order to improve their chances in elections, would want to increase the amount of Universal Basic Income or try to bring back subsidies in some form or the other, which will have fiscal implications.
- What India needs is not Universal Basic Income. It needs rationalisation 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.
- As history has shown, the best way to pull people out of poverty is sustained higher growth. Therefore, rather than creating permanent doles like Universal Basic Income for the entire population, it is necessary to create conditions for higher growth which will decisively lift people out of poverty.