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RSTV: THE BIG PICTURE- UNIVERSAL BASIC INCOME

RSTV: THE BIG PICTURE- UNIVERSAL BASIC INCOME

Introduction:

            Sikkim Democratic Front (SDF) had included Universal Basic Income (UBI) in its manifesto for the assembly and Lok Sabha elections, according to a report by The Indian Express. The state had already begun the process of introducing the unconditional direct cash transfer scheme and planning to implement the same by 2022. It could have become the first state in India to implement UBI. The 2017 Economic Survey had advocated implementation of UBI as an alternative to the various social welfare schemes in an effort to reduce poverty. The Survey said, “UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion.” However, Late Finance Minister Arun Jaitley in June 2017 said the scheme as proposed in the Economic Survey will not be politically feasible in today’s India.

 

What is Universal Basic Income?

  • Universal Basic Income (UBI) is a programme for providing all citizens of a country or other geographic area/state with a given sum of money, regardless of their income, resources or employment status.
  • The main idea behind UBI is to prevent or reduce poverty and increase equality among citizens. The essential principle behind Universal basic income is the idea that all citizens are entitled to a livable income, irrespective of the circumstances they’re born in.
  • The idea of a universal basic income has gained currency in the West because of the threat of automation-induced job losses.
  • In India, the idea first gained currency as a solution to chronic poverty and government’s failure to effectively target subsidies towards the poor
  • The five broad features of such schemes are:
    • Payments at periodic regular intervals (not one-off grants),
    • Payments in cash (not food vouchers or service coupons),
    • Payments to individuals,
    • Universality

 

Rationale behind UBI:

  • The average Indian family’s monthly income in 1938 was Rs 25.
  • Today, the average Indian family’s monthly income is roughly Rs 50,000, a 2,000 times increase since 1938.
  • The poorest 10% of Indian families earn a mere Rs 5,000 a month.
  • 25 million Indian families earn just a tenth of what the average Indian family earns.
  • And, 50 million households earn just a fifth of the average Indian family.
  • While the Indian economy continues to grow, the much touted trickle down impact of economic development seems elusive to the poorer sections of our society.
  • There is a real risk of the bottom quarter of Indian families being left behind completely.
  • The plan to ensure a basic minimum standard of living for every Indian family that was envisaged by Nehru and Bose in 1938 is applicable even today.

 

Economic Survey 2016-17:

  • Universal Basic Income should replace the welfare scheme. The Economic survey wants UBI to replace and NOT supplement the existing social welfare, anti-poverty schemes like MGNREGA, PMJSY etc
  • Economic Survey has suggested replacing all current cash transfers with universal basic income.
  • Survey in a bold step ensured that universal basic income will not be distributive in nature. The burden to distribute the income will not be shared by the rich.
  • The Survey points out that the two prerequisites for a successful UBI are: functional JAM (Jan Dhan, Aadhar and Mobile) system as it ensures that the cash transfer goes directly into the account of a beneficiary and Centre-State negotiations on cost sharing for the programme.

 

The pros of UBI:

  • Fights Poverty and vulnerability: Poverty and vulnerability will be reduced in one fell swoop. It increases equality among citizens as envisaged in our DPSP.
  • New social contract: A social contract that will empower citizens with the freedom of choice. 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. Nobel laureate Amartya Sen had also propounded that choice should be given to people, which will lead to development.
  • Better targeting of poor: As all individuals are targeted, exclusion error (poor being left out) is zero though inclusion error (rich gaining access to the scheme) is 60 percent.
    • Example: The India Human Development Survey found that in 2011-12 about half of the officially poor did not have the BPL card, while about one-third of the non-poor had it.
  • Fighting technological unemployment: With IR4.0 on the rise, there is an increase in the automation leading to loss of many white and blue collared jobs. UBI can act as a sort of security net for the millions of people who will be left jobless by the tech revolution.
  • Supporting unpaid care workers: Those with ill or differently abled relatives are often forced to quit their jobs and look after them full-time. UBI would allow care-workers to support themselves, encouraging care work and taking pressure off public services that provide care to the sick and elderly.
  • Expanding the middle class: The economic growth of high-income countries is making the rich richer, but having very little effect on the working classes. The research of economists Emmanuel Saez and Thomas Piketty showed that “the bottom half of earners went from making 20 percent of overall income in 1979 to just 13 percent in 2014. The top 1 percent, on the other hand, have gone from making 11 percent to 20 percent. The pie has gotten vastly bigger, and the richest families have reaped bigger and bigger pieces from it.” UBI would help balance this inequality and expand the ever-shrinking middle class.
  • Insurance against shocks: This income floor will provide a safety net against health, income and other shocks.
  • 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.
  • Psychological benefits: A guaranteed income will reduce the pressures of finding a basic living on a daily basis.
  • Ending abuse: Those who suffer domestic abuse, mainly women, become trapped in violent situations because they don’t have the means to leave them. UBI would make leaving an abusive partner easy, and would unleash the potential of countless people trapped by domestic violence.
  • Administrative efficiency: A UBI in place of a plethora of separate government schemes will reduce the administrative burden on the state.

 

Problems with UBI:

  • Conspicuous spending: Households, especially male members, may spend this additional income on wasteful activities.
  • Disincentive to work: A minimum guaranteed income might make people lazy and opt out of the labour market.
  • Gender disparity induced by cash Gender norms may regulate the sharing of UBI within a household – men are likely to exercise control over spending of the UBI. This may not always be the case with other in-kind transfer
  • Implementation: Given the current status of financial access among the poor, a UBI may put too much stress on the banking system.
  • Poor fiscal capacity: India doesn’t have the fiscal capacity to implement Universal Basic Income. Economic Survey calculations showed that a 75% universality rate with an annual Universal Basic Income of Rs 7,620 per year at 2016-17 prices will cost about 5% of the GDP. Economist Pranab Bardhan showed that inflation– indexed Universal Basic Income of Rs 10,000 at 2014-15 prices—about three-quarters of that year’s poverty line—will cost about 10% of the GDP.
  • Distort labour Market: 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. It can cause a rise in the wages too.
  • Political economy of universality: ideas for self-exclusion Opposition may arise from the provision of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for the poor.
  • Exposure to market risks (cash vs. food): Unlike food subsidies that are not subject to fluctuating market prices, a cash transfer’s purchasing power may severely be curtailed by market fluctuations.

 

Conclusion:

If people are able to look after themselves better than the state then this concept can be tried out. UBI holds a lot of potential as a welfare scheme, however in its present form needs to be re-evaluated. There is a need for a 10-fold increase in resource mobilisation combined with increasing the tax base for funding. However, the alternatives to UBI can be explored like direct benefits transfers, conditional cash transfers and other income support schemes which also hold the potential to yield the above mentioned benefits.

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