Is it time for Universal Basic Income (UBI) Programme in India?
20th Jul, 2020
The ongoing crisis is creating changes that could end up dividing society into pre- and post-COVID-19 days. These changes are also likely to exacerbate the novel challenges accompanying the fourth industrial revolution.
Meaning of Universal Basic Income (UBI)
In its purest form, a basic income is an unconditional, periodic cash payment that the government makes to everyone. It is not based on means-testing: A hedge fund manager and a homeless person receive the same amount. It has no strings attached, meaning it carries no requirements to work, attend school, receive vaccines, register for military service, or vote. It is not paid in kind—housing, food—or in vouchers. It is a floor below which no one's cash income can fall.
Need for UBI at this time
- A tool to eradicate poverty
- UBI is deliberated as an effective poverty-eradication tool. Supporters of this scheme include Economics Nobel Laureates Peter Diamond and Christopher Pissarides, and tech leaders Mark Zuckerberg and Elon Musk.
- UBI in its true sense would entail the provision of an unconditional fixed amount to every citizen in a country. Nevertheless, countries across the world, including Kenya, Brazil, Finland, and Switzerland, have bought into this concept and have begun controlled UBI pilots to supplement their population.
- India’s huge capacity and infrastructure-building requirements will support plenty of hands in the foreseeable future. Nonetheless, even before the pandemic, India was struggling to find enough opportunities for more than a million job aspirants who were entering the job market each month.
- The 2016-17 Economic Survey and the International Monetary Fund (IMF) had proposed quasi-basic income schemes that leave out the well-off top quartile of the population as an effective means of alleviating poverty and hunger. The fiscal cost of a UBI pegged at ?7,620, at 75% universality, was 4.9% of the GDP. A UBI on par with the numbers suggested by the Economic Survey could lead to targeted household incomes increasing by almost ?40,000 per annum since the average Indian household size is approximately five.
- Different times
- The times now are very different. IMF has projected global growth in 2020 to be -3.0%, the worst since the Great Depression. India is projected to grow at 1.9%. The U.S. economy is expected to fall by 5.9%.
- The unemployment rate and unemployment claims in the U.S., since President Donald Trump declared a national emergency, are the highest since the Great Depression. Unfortunately, India does not even have comparable data.
- Lockdowns in some formats are expected to be the norm till the arrival of a vaccine. With almost 90% of India’s workforce in the informal sector without minimum wages or social security, micro-level circumstances will be worse in India than anywhere else.
- The frequent sight of several thousands of migrant laborers undertaking perilous journeys on foot in inhumane conditions is a disgraceful blight on India. One way to ensure their sustenance throughout these trying times is the introduction of unconditional regular paychecks at maximum universality, at least till the economy normalizes.
Challenges in implementing UBI in India
- The biggest issue is that India doesn’t have the fiscal capacity to implement Universal Basic Income. For example, the Economic Survey calculations showed that a 75% universality rate with an annual Universal Basic Income of Rs. 7, 620 per year at 2016-17 prices will cost about 5% of the GDP.
- It is often assumed that resources can be raised by rationalizing subsidies and capturing a part of the revenue forgone on account of various tax exemptions, including in the personal income tax. These may not happen.
- Politically, it will be extremely difficult to roll back subsidies to create fiscal space for Universal Basic Income. It is always advisable for the government to work on reducing non-merit subsidies, but the gains should be used to increase capital spending, which will help boost growth in the medium-to-long term.
- Universal Basic Income can create distortions in the labor market. A steady, permanent, and guaranteed income without any work is likely to affect labor mobility and participation. It is also likely to increase wages, as has been witnessed after the implementation of the Mahatma Gandhi National Rural Employment Guarantee Act.
- Higher wages without a commensurate increase in productivity will affect India’s competitiveness. This could also have longer-term implications in terms of higher inflation and lower growth. The distortions in the labor market will, of course, depend on the amount of Universal Basic Income.
- The nature of Indian politics can create complications. It is highly likely that political parties, to improve their chances in elections, would want to increase the amount of Universal Basic Income or try to bring back subsidies in some form or the other, which will have fiscal implications. To be sure, India still has to prove that it can run balanced budgets for an extended period. The political class always has this temptation to declare premature victories and give away fiscal gains.
- Despite challenges in implementing UBI many consider a universal basic income (UBI) programme to be a solution that could mitigate the looming crisis caused by dwindling job opportunities. Thus, it can be said that if universal basic income ever had a time, it is now.