Universal Basic Income (UBI)

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Introduction

  • The idea of UBI is not new but in the past few years, it has resurfaced globally in a very big way as a means of redistributing income.
  • Several experiments/pilots are being currently run across the world, but not yet adopted by any country as such.
  • In India, the idea first gained currency as a solution to chronic poverty and government’s non-success to effectively target subsidies towards the poor.
  • The Economic Survey of 2016-17 had first flagged the UBI as “a conceptually appealing idea” and a possible alternative to social welfare programmes targeted at reducing poverty.
  • Sikkim plans to implement the Universal Basic Income scheme by 2022.

What is UBI?

  • Universal basic income (UBI) is a model for providing all citizens of a country or other geographic area with a given sum of money, regardless of their income, resources or employment status. The purpose of the UBI is to prevent or reduce poverty and increase equality among citizens.UBI is one example of a guaranteed income model.
  • UBI is also known simply as basic income. According to the advocacy group Basic Income Earth Network (BIEN), the essential principle behind 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.
  •  The main alternative model is a guaranteed minimum income (GMI) system, sometimes called a basic income guarantee (BIG), which involves varying needs-based supplements designed to ensure that all citizens have enough to live on. In that system, only low-income individuals receive payments.

Why UBI?

The primary reasons for the tilt towards UBI are:

  • Growing and vast inequality
  • Threat of automation affecting jobs and creating joblessness
  • Rural and agrarian distress

The Economic Survey 2016- 17 lists all the risks and advantages of UBI, but it tends to lean towards the idea and rationalize most of the drawbacks. Pros and Cons of UBI are:

Pros:

  1. Administrative Efficiency : This scheme very easy to deliver to the citizens with the help of bank account transfers. It will also reduce confusions related to several rules that usually govern welfare schemes
  2. Poverty reduction : At a UBI of 4200 Per person annually, the poverty rate as per current definition will reduce to 1.42%. The expenditure of 4200 per person under UBI would be same as the money spent on all welfare schemes as of now
  3. Financial inclusion: Since all individuals will use their bank account to access the money, the inclusion of un-banked people into the banking sector will lead to financial inclusion
  4. Women empowerment : India’s women below poverty line suffer more than men. An income in their bank account will ensure that they have a greater say in family affairs and get better nutrition
  5. Psychological benefits : UBI will unburden the poor from task of finding work for daily survival and help them to improve socio -economic indicators like health, literacy and eduction

The World Development Report (2015) argues that individuals living in poverty have  :

(a) A preoccupation with daily hassles and these results in a depletion of cognitive resources required for important decisions;

(b) Low self-image that tends to blunt aspirations;

(c) Norms that may require investments in social capital to the detriment of private opportunities.

Cons:

  1. Cost to the tax payer: Currently, the money spent on all centrally sponsored schemes comes up to 5.2% of the GDP. However, the cost of UBI will be higher than the amount and also, it will increase annually due to inflation. Finding the optimum level of UBI will be a major challenge.

    Table :UBI amounts, Poverty rate (NSS & IHDS 2011-12) and cost to GDP (Percent)

    Source: Economic Survey 2016–17

  2. Inflation : The purchasing power of the rupee reduces due to inflation. Hence , the government will have to adjust the UBI from time to time. In case the growth of the economy is not catching up with inflation, this could lead to financial disaster.
  3. Possibility of reduction in labor supply: With an assured basic income, there might be drastic reduction of voluntary labor. This may also lead to rise in cost of labor , hurting India’s advantage as a country with cheap labor
  4. Access to banks: A large majority of Indians are still not using the banking services regularly. Though Jan Dhan Yojana and post office bank have increased the coverage, rural areas might not be able to absorb the new concept.
  5. Rise in consumption of temptation goods: The universal basic income concept is useful in eliminating all subsidies including PDS. However, there is a possibility of people spending this money on temptation goods like cigarettes and alcohol instead of nutritious food.

India’s status on UBI

  • India already has UBI-like scheme under which too little is paid, not hiked since 2006/7 – Under the National Social Assistance Programme (NSAP) since 1991, the Central government gives pensions to elderly, widows and disabled. The Centre’s component is between Rs 200 and Rs 300.
  • UBI can’t be at the cost of expenditure on health, education or rural infrastructure. 950 central sector and centrally sponsored sub-schemes include those of food subsidy, fertiliser subsidy, NREGA, SSA, LPG subsidy, Awas Yojana, Gram Sadak Yojana, ICDS, Swachh Bharat, Mid-day meals etc.
  • These are meant for long-term improvement in human development, rural infrastructure, employment etc. and can’t be substituted by cash transfer. Therefore, replacing existing schemes with cash transfer will adversely impact the development goals of India.

UBI in Sikkim

Sikkim’s ruling party, the Sikkim Democratic Front (SDF) has already considered the “affordability” of the scheme.

Funding for UBI – Initial plan

  • The successful implementation of the hydropower projects by the state has made it a surplus power generating state.
  • “The state produces 2200 MW and it will go up to 3000 MW in the next few years. The state’s requirement is only 200-300 MW and the rest goes to power trading firms. When this money comes in, we as SDF feels its people’s money and it should be utilized for them.”
  • Sikkim also plans to subsume other subsidies and allowances in order to provide a particular amount every month to people.

Other places where UBI/similar programmes were implemented

  • In 2011-2013, Madhya Pradesh  started Madhya Pradesh Unconditional Cash Transfers Project where Rs. 300 were provided to every single adult and Rs. 150 to children. It is considered a successful experiment as the living conditions improved drastically.
  • Similar programs include MINCOME in Canada and Basic Income Grant in Namibia, which also have shown successful results.

Way forward

  • The development economist Reetika Khera has suggested that the move towards universal basic income should start with a ‘universal’ pension of ₹ 1,000 per month to the easily identifiable groups of elderly, widowed, and disabled . Additionally, the government should ensure maternity entitlements of ₹ 6,000 per child. Such a scheme would cost a relatively manageable 1.3% of GDP.
  • Whether the basic income will work in a country of over 120 crore, and how is a matter for bigger discussions, but with Sikkim taking the charge, it adds another feather to the cap of the state which is ahead in several other areas- its literacy rate is 98 percent, and the state assembly, in December last year, approved the ‘one family, one job’ scheme to create over 16,000 jobs. The BPL percentage has come down from 41.43% in 1994 to 8.19% in 2011-12.

 

Sources:

Business Today 

Indian Express

Livemint

India today

Economics Times 

May 17, 2019

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