Universal Basic Income

Current Affairs

Introduction:

With rapid emergence of technologies and automation that are capable of replacing large section of workforce, a good number of jobs is bound to shrink worldwide. However what is the matter of great concern is as the fundamental economics points out that in larger perspective, workers are the consumers, the number of consumers would also shrink as they would hardly be left with any money in absence of jobs. In near future, advance technologies like 3-d printing, big data analytics, artificial intelligence, Nano-technology etc. would replace a massive number of jobs worldwide. This has forced economists to think over such income redistribution policy which would ensure sustained purchasing powers of consumers without jeopardizing industrial development. Regarding this, a section of economists propounded the idea of ‘Universal Basic Income (UIB)’ as early as in the latter half of 20th century. Since then the idea has found formidable support across the sections of economists, policymakers and leaders of the world. In many developed countries, UIB has already been rolling out with significant results.

In India too, the term has found prominent place across the political and economic discourse. Only recently, the economic survey 2015-16 has a dedicated chapter on ‘Universal Basic Income (UIB)’. In India, the idea is especially appealing because of the weakness of existing welfare programs, which largely take the form of subsidies paid to sellers of grain, fuel, fertilizer and other essentials.

What is ‘Universal Basic Income’?

Universal Basic Income (UIB) refers to a certain amount that is meant to be transformed to the people uniformly irrespective of their social or economic status. UBI has three significant components: universality, unconditionally, and agency by providing support in the form of cash transfers to respect, and recipients’ choices.A universal basic income is, like many rights, unconditional and universal: it requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens. UBI could have also been described as having critical bearing over two sectors: Social justice and productive economy.

Since Indian constitution proclaim India as social democracy, it is binding upon the extant government to take relevant measures to advance interests of weaker section of people.  Welfare schemes with loaded subsidies have been the flagship measures of government to ensure social justice. However, these schemes were, for decades, full of leakages, inclusion-exclusion errors in beneficiaries and other inefficiencies. To counter this, the economic survey has discussed the feasibility of UBI as potential measure of social welfare. However, at present the survey does not talk about replacing social welfare schemes with UBI. The other benefit of UIB (what economists have advanced) is: increased purchasing powers of middle and lower class people. They highlighted the fact that since automation is on the rise and economy is rapidly turning into a highly organized one, people from middle and lower class (largest consumer section) would lose much of its purchasing power. Hence, to maintain the growth of economy it is important to redistribute the income in form of a certain basic income which could be used by beneficiaries to buy articles of their own choice.

Feasibility of Universal Basic Income (UBI) in India:

As we all know UIB is already very popular in developed western countries like Finland, Netherlands, etc., a similar arrangement is being discussed in India too. However, policymakers and economists are still debating the implications of UIB over public finance. Assessing the feasibility is not a straightforward as there are numerous factors that should be counted while assessing merits and demerits of basic income based system.

According to economic survey, after calculating the prevailing inflation and official poverty line, the required UIB for 2016-17 would be INR 7620 per year.  This overall yield a cumulative figure of 4.9 percent of GDP. However, as discussed earlier the UBI is likely to be more effective than existing programs in reducing misallocation, leakage and exclusion errors. After all, replacing one rupee of the fertilizer subsidy should require a compensating UBI of less than one rupee. As the UBI is a cash transfer, its ‘real’ value also tends to be determined by inflation in the economy.

The required space for UBI in India:

It is still a government’s prerogative to decide on what programmes/expenditures to prioritize in order to finance a UBI. In order to materialize UIB, it is equally important to take up a disinterested assessment of total cost and potential fiscal space. However, economists caution that while a UBI may certainly be the shortest path to eliminating poverty, it should not become the Trojan horse that take over theentire fiscal space of a well-functioning state.

Benefits of UBI in India:

  • Social justice:  UBI, has found support almost cross all the spheres ofthoughts- from right to left; from John Rawls to Mahatma Gandhi; developed to developing all have agreed that the social justice should be an integral part of any income redistribution policy. Therefore as a tool to advance interests and empowerment of weaker sections, UIB has wide acceptability and make strong case in favor of it. A Universal Basic Income promotes many of the basic values of a society which respects all individuals as free and equal. It promotes liberty because it is anti-paternalistic, opens up the possibility of flexibility in labor markets.
  • Poverty reduction: In a country, where most people are poor because of social and economic deprivation, UIB may prove to be fastest of way of reducing poverty given the government take pain to revamp financial system so that poor people may actually participate in the organized economic activities.
  • Efficiency in the governance of welfare measures: As of now, government has solely dependent on its various welfare schemes to take care of interests of weaker sections and to sustain the rural economy which is not only plagued with many deficiencies but also have design flaws and being implemented in most non-optimal manner. However, UIB alone cannot make it efficient. The UIB should be implemented only when the trinity of Jan-Dhan, Aadhaar and Mobile (popularly referred to as JAM) is fully adopted.
  • Employment: At a time, when the manual jobs are shrinking rapidly worldwide, UBI is an acknowledgement that state’s obligation to guarantee a minimum living standard is even more urgent. Moreover, UBI could also open up new possibilities for labour markets. It creates flexibility by allowing for individuals to have partial or calibrated engagements with the labour market without fear of losing benefits. They allow for more non-exploitative bargaining since individuals will no longer be forced to accept any working conditions, just so that they can subsist.

A comparative analysis of Universal Basic Income system:

Positives

Negatives

Poverty and vulnerability reduction

Male members may spend this amount on wasteful activities thus, conspicuous spending may get encouraged.

Flexibility as the UBI system entrust people with autonomy of spending habits

UIB may prove a major moral hazard as people may turn in lazy and deliberately opt out of labour market

As the system is universal in nature, inclusion-exclusion matters are expected to be resolved.

It also may incentivize gender violence as male members would try to control the family finance obtained from UIB. Apart from this, population explosion also might get incentivize due to UIB.

For successful implementation, major improvement in financial inclusion pre-requisite.

UIB will put a considerable burden on already strained banking system.

UBI in place of a plethora of separate government schemes will reduce the administrative burden on the state.

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:

The mature discussion over Universal Basic Income (UIB) in India is still at very nascent stage. There is a need of an exhaustive assessment of available financial resources vis-à-vis required finance for a meaningful UIB system. The government also need to keep in mind the societal difference between Indian society and western society and should indeed go ahead with a cautious approach. Many economists point out that developing countries such as India currently stand far away from the requirement of UIB. They argue that the country, instead of undertaking UIB, should strengthen the social sector schemes and increase the budgetary allocation in this sector. India compare to western countries and even developing countries like China, Russia, and Brazil spends much lesser on critical human development factors such as education, health, livelihood of weaker section etc.

There is no harm in discussing innovate measures, as the one UIB is, to improve efficiency in public spending, however any politicization of such critical matter would have severe consequences on public finance and overall national economy. Therefore, the need of the hour is to start serious discourses over its feasibilities; undertake empirical studies; and consultation with a large number of stakeholders and then devise effective planning to implement the UIB in optimal manner.

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