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Universal Basic Income

Universal Basic Income

Why in news?

  • Sikkim’s ruling Sikkim Democratic Front (SDF) has decided to include Universal Basic Income (UBI) in its manifesto for the upcoming assembly and Lok Sabha elections.
  • The state has already begun the process of introducing the unconditional direct cash transfer scheme and is planning to implement the same by 2022.
  • It could become the first state in India to implement UBI.

What Is Universal Basic Income?

  • UBI full form is Universal basic income has three components, agency (by providing support in the form of cash transfers to respect, not dictate, recipients’ choices), unconditional and universality. It is built supposedly that a just or deserved community needs to guarantee a minimum income to each individual which they can count on to provide themselves basic goods, the necessary material foundation and a life of dignity. A universal basic income gives every person unconditional and universal rights. These rights require every individual to have basic income to fulfill their needs, just by virtue of being citizen of the country.
  • In short, A UBI requires the government to pay every citizen a fixed amount of money on a regular basis and without any conditionalities.

UBI Concept Is Not New To India

  • National Old Age Pension Scheme (NOAPS) which is a cash transfers to people below poverty line is one form of Old age income support.
  • Indira Gandhi National Widow Pension Scheme (IGNWPS)
  • Indira Gandhi National Disability Pension Scheme (IGNDPS)
  • Rythu Bandhu scheme. The investment support programme provides financial assistance of ₹4,000 per acre per season to all land-owning farmers in Telangana.
  • DBT scheme: like PAHAL (modified DBTL for LPG subsidy) is a form of income support to the poor households, to enable them to purchase goods from the market.
  • The next frontier is to monetize all the benefits and transfer the money (UBI) to the bank accounts in the form of income.
  • The Economic Survey 2016-17 advocated in favour of monetizing the existing schemes with universal targeting (gradually) so that none is left out (as it makes it administratively simpler and cuts down problems associated with targeting beneficiaries).
  • India’s Self Employed Women’s Association (SEWA) with support from UNICEF has been conducting a cash transfer pilot project in rural villages. Positive results were found in terms of nutrition, health, education, housing and infrastructure, and economic activity.
  • Sikkim ruling party, the Sikkim Democratic Front (SDF), has decided to include UBI in its manifesto ahead of the Assembly elections 2019 and aims to implement the scheme by 2022.

Purpose of the UBI

  • To prevent or reduce poverty and increase equality among citizens
  • Underlying principle: Basic income is the idea that all citizens are entitled to a livable income, whether or not they contribute to production and despite the particular circumstances into which they are born.

Challenges With Respect To Implementation Of UBI In India

  • Large Demography: Covering a large population may lead to drainage of fiscal resources which are required for capital investments in India like upgradation of Railways, Electricity, combating climate change, Renewable energy, etc.
  • Geography challenge: Market access is unequally distributed (urban centres vs rural hamlets) across India (hills, deserts, plains, island) and simply transferring income may not lead to delivery of services ( like education, health, nutritious food, etc.)
  • Moral challenge: Gandhiji was against free lunches, a man should earn his food and should not accept it freely (like MGNREGA).
  • Acceptance challenge: Universality principle will be seen as unjust to the poor as payments will be made to those who are rich. This will not be accepted by all.
  • Federal challenge: Centre-State negotiations on cost sharing for the programme could delay its implementation.
  • Banking challenge: Not all habitations have been covered by the banks and a lot of time and energy is spent in access banking services physically. Economic survey also points to JAM (Jan Dhan, Aadhar and Mobile) system as a prerequisite for a successful UBI implementation.                        Universal Basic Income

Benefits of UBI

  • Reduces out of system leakage: Conceptually, a UBI reduces out of system leakage because transfers are directed straight to the beneficiaries’ bank accounts. The scope for diversion is reduced considerably, since discretionary powers of authorities are eliminated almost wholly.
  • Reduces misallocation of resources across districts: a UBI will simply amount to a transfer of resources from above and need not be “accessed” by beneficiaries. In addition, by focusing on universality, UBI reduces the burden on the administration further by doing away with the tedious task of separating the poor from the non-poor.
  • Exclusion error: Given the link between misallocation and exclusion errors, a UBI that improves allocation of resources should mechanically bring down exclusion error. Furthermore, by virtue of being universal, exclusion errors under the UBI should be lower than existing targeted schemes.

Arguments against UBI

  • A guaranteed minimum income might make people lazy and it breeds dependency. They may opt out of labour market.
  • 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.
  • A ‘guaranteed minimum income’ might reduce the availability of workers in some sectors which are necessary but unattractive and raise the wages of such works. For example, the wages of agriculture labour might increase due to non-availability of workers willing to work in others’ farm.                Universal Basic Income

Examples From Around The World

Many countries in the world have tried the idea of UBI in one form or the other.

  • Namibia: A pilot project with basic income grant was implemented in the Namibian villages of Otjivero and Omitara. After the launch, the project was found to have significantly reduced child malnutrition and increased school attendance. It was also found to have increased the community’s income significantly above the actual amount from the grants as it allowed citizens to partake in more productive economic activities
  • Finland: Finland recently concluded a two-year experiment on effects of UBI on unemployed citizens, which commenced in January 2017.
  • Canada: the government of Ontario, Canada, had announced a plan to test a kind of unconditional income guarantee and enrolled participants in three areas of the province for a guaranteed income for up to three years.
  • Netherland and Spain: Some cities in the Netherlands have launched municipal-level trials for UBI. Barcelona in Spain has also tested several potential changes to its anti-poverty programmes, including unconditional cash payments.
  • In high-income countries (HICs), the main rationale for UBI is related to automation, artificial intelligence, stagnant real wages, etc.

Conclusion

  • 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.
  • UBI is a powerful idea whose time even if not ripe for implementation, is ripe for serious discussion.
  • (Universal Basic Income)

 

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