Universal Basic Income: Prospects and Problems

  • Universal Basic Income (UBI) is a form of social security under which all citizens of a country are provided with a given sum of money, regardless of their income, resources or employment status.
  • According to the Basic Income Earth Network, a universal basic income is a “periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.”
  • The scheme functions on the concept of direct cash transfer, which puts more cash in the hands of citizens, thereby improving their everyday income.
  • The purpose of the UBI is to prevent or reduce poverty and increase equality among citizens.
  • There are five defining characteristics of basic income:
    • Periodic: Distributed in regular payments
    • Cash payment: UBI is a cash transfer scheme, as opposed to any other scheme that involves payment in kind, i.e. through specific goods or services.
    • Individual: Each citizen (or adult citizen) receives the payment, rather than each household.
    • Universal: All citizens receive the payment. It means UBI is not targeted.
    • Unconditional: That means one need not prove his or her unemployment status or socio-economic identity to be eligible for UBI.
  • Thomas More introduced the concept of guaranteed income in his 1516 book, Utopia.
  • Under UBI, only those with zero income will receive the full benefits in net terms. For those who earn additional income over the basic income, the net benefits will taper off through taxation. So even though the basic income is universal, only the poor will receive the full benefits.

What UBI means to the Government?

  • From the government side, this would mean massive shift in the way it spends the revenue that it receives through taxation.
  • Currently the money that the government earns through taxation and other revenue sources are used to fund the various services that the government provides, as well as the welfare subsidies it pays for.
  • A universal income would mean the government moving away from service delivery and instead simply providing people with the money to access those services.

 International Experience

  • Across the world, from India to Europe, the idea of a Universal Basic Income is finding appeal.
  • Basic income programmes have been piloted in Canada, Finland, southern Africa, Kenya etc.
  • In June 2016, voters in Switzerland rejected a proposal to introduce a guaranteed basic income for all. In a referendum, 77% of the Swiss voted against a scheme that would give each of them an unconditional monthly income, whether or not they had a job or any other income.
  • On January 1, 2017, Finland began a pilot programme aimed at understanding the effects of a basic income. The government decided that it would pay €560 a month for two years to 2,000 unemployed persons, and continue to provide the income even if they find employment. In 2019, Finland ended this experiment.
  • The cities of Barcelona in Spain (which has very high unemployment) and Utrecht in The Netherlands are also doing similar experiments.
  • The Kenyan pilot programmeis still running and the people of around 200 villages in the country are its beneficiaries. The pilot is expected to continue running for another 12 years.

UBI in India

  • Universal Basic Income (UBI) has never ever been implemented in a country the size of India.
  • India ran two pilot programmes for 12-17 months between 2011 and 2012, both in Madhya Pradesh. The first one was aimed at transferring funds to eight villages, while the second one was aimed at cash transfer to the inhabitants of two tribal villages.
  • Economic Survey for the year 2016-17 has an entire chapter dedicated to the discussion on Universal Basic Income (UBI). It 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”. With an UBI of 4500 rupees per annum, the Economic Survey 2016–17 estimates that the poverty levels could be reduced to 1.24%
  • Across the economic spectrum, economists feel the basic income should be fixed at a level that is just above the poverty line in a country.
  • Rangarajan committee in 2012 has fixed the poverty line as Rs 32 in rural areas and Rs 47 in urban areas.
  • To ensure that there is no one below the poverty line, each individual should de given Rs 32 as the base in rural India and Rs. 47 in urban India. This costs Rs 960 a month or Rs 11,520 a year for each an every individual below poverty line.
  • But financing this scheme even if it is for just those under the poverty line, instead of all Indian citizens, would put enormous stress on government funds.
  • If one assumed that only the 37.5 crore persons below poverty line get the basic income, this would entail a cost of Rs 4.32 lakh crore annually, which is 4.9% of GDP.
  • But many economists points out that 5.2% of GDP is already being spent on all 950 central sector and centrally sub-sponsored schemes.
  • In 2019-20 Budget, the Finance Minister Piyush Goyal unveiled the Pradhan Mantri Kisan Samman Nidhi promising “assured supplemental income” of Rs. 6000 per annum to disadvantaged farmers
  • The Telangana government’s Rythu Bandhu scheme and Odisha’s KALIA also assure a fixed amount to farmers.

Advantages of UBI

  • Universal basic income is relatively easy to implement. Unlike targeted welfare schemes, which need extensive groundwork to identify beneficiaries and auditing to ensure that there is no leakage, a basic pay would be simpler to deliver. This could help counter the corruption and ensure efficient use of revenue.
  • A universal income would give people the freedom to spend it in any way they choose. This gives them the economic strength to choose the kind of work they would want rather than be forced to take up undesirable jobs to meet necessities.
  • Numerous subsidies , central schemes and state schemes can be cut down and improve the administrative efficiency
  • Ensuring minimum income fulfills the requirement of the welfare state mentioned in the directive principles of the constitution
  • UBI would help Indian women gain greater financial independence and thus enhance gender equality. In 2018, about 75% of adult Indian women are not employed in jobs outside of the home; without a source of income they are financially dependence on their husbands or families.
  • UBI would uniquely benefit India because of its large informal sector. More than 90% of the Indian population works in the informal sector. This segment of the workforce now receives no benefits or pensions, and hence informal sector workers have no access to retirement savings, health benefits, or financial security.
  • Incorporating UBI through direct transfers would bring more people into the formal banking system.
  • Increased income will increase the bargaining power of individuals, as they will no longer be forced to accept any working conditions.
  • Under some circumstances, UBI could promote greater productivity. For example, agriculture labourers who own small patch of land and earlier used to work in others’ farm for low wages, can now undertake farming on their own land. In long term, this will reduce the percentage of unused land and helps in increasing agriculture productivity.

Arguments against UBI

  • One major concern is that these cash transfers could replace, rather than supplement, existing schemes that provide subsidised goods and services. This would imply that citizens could be left at the mercy of private, for-profit players to avail even basic services.
  • This might incentivise the state to escape from its constitutional responsibility of providing basic entitlements to all.
  • There is no guarantee that the additional income will be spent on education, health etc. there are chances that the money will be spent on ‘temptation goods’ such as alcohol, tobacco, drugs etc.
  • Given the large population size, the fiscal burden on government would be high. Also, as Economic Survey 2016-17 noted, once implemented, it may become difficult for the government to wind up a UBI in the case of failure.
  • If the UBI is funded by higher taxes, especially by the indirect taxes, it will result in inflation. This, in turn, will reduce the purchasing power of the people and lowers the value of the amount transferred.
  • Another argument against UBI is that it cause decline in labour supply as people get paid without working.


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