Universal Basic Income (UBI)

 

Why in News

To deal with the economic inequality, unemployment and poverty created by the Covid-19 pandemic, many advocate Universal Basic Income (UBI) programme to be a solution.

Context:

West Bengal Chief Minister Mamata Banerjee has released the Trinamool Congress manifesto for the 2021 Assembly election.

• The manifesto, among other things, promises universal basic income for every family.

• There are high growth and GDP numbers that the nation is witnessing. But this is not transforming the development of individual and personal empowerment. Despite rapid economic growth millions of people are unemployed and extremely poor, as can be seen in the last three decades.

• There are large groups of landless labourers, agricultural workers and marginal farmers who suffer from multidimensional poverty. These groups have not benefited from economic growth. Various welfare schemes have also failed to bring them out of penury.

• Because people are getting poor, there is a lack of basic amenities the idea of a universal basic income (UBI) is gaining currency globally.

• It has supporters among the political left and right, and among proponents as well as opponents of the free-market economy.

Why UBI is required?

• Social Justice: UBI is firstly a test of an egalitarian society. Any society where all people do not earn income equally fails the test of justice. UBI propounds many of the basic values of a society that respects all individuals as equal. It promotes equality because it is anti-paternalistic, opens up the possibility of flexibility in labour markets. It promotes efficiency by increasing transparency in government transfers. Further information on Transparency in the Administration is available on the given link.

• Poverty Reduction: if the current financial system functions properly the UBI- Universal Basic Income may simply be the fastest way of poverty reduction. Know more about Poverty a social challenge on the given link.

• Agency: Our current welfare system, even when well-intentioned, inflicts an indignity upon the poor by assuming that they cannot take economic decisions relevant to their lives. An unconditional cash transfer treats them as agents, not subjects. UBI liberates citizens from paternalistic and clientele relationships with the state. By taking the individual and not the household as the unit of the beneficiary, UBI can also enhance agency, especially of women within households.

• Employment: UBI could open up new potentials for labour markets. It creates tractability by allowing individuals to have fractional or standardized engagements with the labour market without fear of losing benefits. They permit more non-exploitative negotiation since people will no longer be required to accept any working conditions, just so that they can survive.

• Administrative Efficiency: In India in particular, the case for UBI has been heightened because of the weakness of current welfare schemes that are riddled with misallocation, escapes and exclusion of the poor. When the trinity of JAM Jan-Dhan,-Aadhaar and Mobile is fully adopted the time would be apt for a mode of delivery that is administratively more efficient.

• Institutional credit: According to the National Sample Survey Office (NSSO) data from the 70th round, institutional credits account for less than 15% of the total borrowing by landless agricultural workers; The figure for marginal and small farmers is only 30%. These groups have to borrow from moneylenders and adhatiyas at exorbitant interest rates ranging from 24 to 60%. As a result, they do not stand to benefit much from the interest rate subsidy for the agriculture sector.

Likewise, the benefits of subsidized fertilizers and power are enjoyed largely by big farmers. In urban areas, contract workers and those in the informal sector face a similar problem. The rapid pace of automation of low-skill jobs and formalisation of the retail sector means the prospects of these groups are even bleaker.

Key Points

• In order to deal with the Covid-19 pandemic, the governments across the world have imposed measures like lockdown and social distancing.

• However, these measures have caused collateral damage to almost every sector of the economy, so much so that the International Monetary Fund held the current economic crisis could be the worst ever since the Great depression 1929.

• With almost 90% of India’s workforce in the informal sector without minimum wages or social security, micro-level circumstances in India are worse than anywhere else.
  • Even before pandemic, India was struggling to provide job opportunities for millions of job aspirants who were entering the job market.

• Regular payments through Universal Basic Income (UBI) can ensure the sustenance of the workers engaged in the informal sector, at least till the economy normalises.

• Countries across the world, which include Kenya, Brazil, Finland, and Switzerland, have bought into this concept.

• Supporters of the UBI programme include Economics Nobel Laureates Peter Diamond and Christopher Pissarides, and tech leaders Mark Zuckerberg and Elon Musk.

Idea of Universal Basic Income

• The Economic Survey of India 2016-17 has advocated the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty.

• Idea behind the Universal Basic Income is that every person should have a right to a basic income to cover his needs, just by virtue of being a citizen.

• The purpose of the UBI is to prevent or reduce poverty and increase equality among citizens.

• UBI has five components:
  • Universality- It is universal in nature.
  • Periodic- Payments at periodic regular intervals (not one-off grants)
  • Payments to individuals
  • Payments in cash (not food vouchers or service coupons).
  • Unconditionality- There are no preconditions attached with the cash transferred to the beneficiary.

Benefits of Universal Basic Income (UBI)

• UBI will provide secured income to individuals.

• The scheme will reduce poverty and income inequality in society.

• It will increase the purchasing power of every poor which will further increase aggregate demand.

• Easy to implement because no identification of the beneficiary is involved.

• It will reduce the wastage of government money because its implementation is very simple.

Significance

• It will guarantee to each individual a minimum income for a dignified life with access to basic goods.

• The scheme will provide every citizen unconditional cash transfer in place of the many benefits, like health facilities, fertiliser, fuel, food subsidies etc.

• The payments could help stabilise the economy during recessionary periods.

• It will promote social justice by reducing poverty.

• Increase the purchasing power of every poor which will further increase aggregate demand.

• Easy to implement because no identification of the beneficiary is involved.

• Reduce the wastage of government money because its implementation is very simple.

Issues In implementing UBI

• Rolling out a universal basic income will be an uphill task -- from identifying beneficiaries to getting them on board and monitoring implementation

• The problem in the scheme comes when cut-offs are set and benefits are targeted at certain groups.
  • Fiscal issues also surface when, rather than having a fixed budget for the scheme covering all citizens, cut-offs for various segments have to be worked out.

• Cost
  • The scheme is expected to become unsustainably large, stretching the country’s finances to a breaking point.

• Other issues

• Dis-incentivization to the work and the work productivity may decrease.

• It can cause more social problems like more alcohol consumption, tobacco consumption etc.

• Inflation could be triggered because of the increase in demand for goods and services.

• Lack of the political will because of the costs involved.
  • The fiscal cost of a UBI pegged at Rs. 7,620, at 75% universality, was 4.9% of the GDP.
    • The Economic Survey of India's (2016-17) model of UBI suggested providing Rs. 7,620 per annum to 75% of India's population.
    • The income was based on Suresh Tendulkar's poverty line of 2011-12 inflation-indexed to 2016-17.
  • A UBI on par with the numbers suggested by the Economic Survey could lead to targeted household incomes increasing by almost Rs. 40,000 per annum, since the average Indian household size is approximately five.

• Difficulty in reducing some of the existing subsidies to balance the resultant deficit.

• There is no guarantee that the given cash will be spent on productive activities, health & education, etc. It may be spent on tobacco, alcohol, drugs, and other luxury goods etc.

• Free cash to the people will increase the rate of inflation in the economy.

• Workers can refuse to work as a labourer or demand higher wages which can increase the cost of production of agricultural goods.

Way Forward

• UBI should be made universal first across easily identifiable vulnerable groups like widows, old, pregnant women etc.

• An institutional mechanism has to be in place for rolling out universal basic income.

• It will also require another round of Socio Economic and Caste Census (SECC) to get updated data on beneficiaries as the 2012 data is now outdated and does not provide the correct picture,

• The country simply does not have this magnitude of resources, so state finances would need to improve further before such an idea is considered implementable.

• The 2017 Economic Survey had flagged the UBI scheme as “a conceptually appealing idea” and a possible alternative to social welfare programmes targeted at reducing poverty.

• UBI envisages an uncompromised social safety net that seeks to assure a dignified life for everyone, a concept that is expected to gain traction in a global economy buffeted by uncertainties on account of globalization, technological change, and automation.

• If universal basic income ever had a time, it is now. It can be implemented to deal with the unemployment, income inequality and poverty posed by Covid-19 pandemic.