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Universal Basic Income

  • Category
    Economy
  • Published
    17th Jan, 2019
  • Sikkim has started the process to to roll out Universal Basic Income (UBI) in the state.
  • The central government too is exploring the possibility of providing direct benefit transfers to those Below the Poverty Line (BPL) through a UBI and for farmers through direct investment support.

Issue

Context:

  • Sikkim will be the first state to roll out Universal Basic Income (UBI) and has started the process to introduce the unconditional direct cash transfer scheme.
  • The central government too is exploring the possibility of providing direct benefit transfers to those Below the Poverty Line (BPL) through a UBI and for farmers through direct investment support.
  • Amid persistent farm distress and weak wage growth across occupations, the idea of an income support scheme seems to be gaining ground once again. Some advocate an income support scheme for farmers while others advocate a broader income support for all.

Background:

Centre’s plan:

  • It is expected that the government may announce a UBI of Rs 2,500 per month initially to families below the poverty line. The money would be directly transferred to this section while ending other measures such as food and LPG subsidy.
  • For the farmers, comprising 47 per cent of the country’s population, the government is considering an adaptation of Telangana’s Rythu Bandhu scheme where farmers tilling less than an acre of land would be given Rs 4,000 per acre, or a proportion thereof depending on the size of land holding, for each of the two cropping seasons — Rabi and Kharif.
  • The government is also considering the possibility of providing interest-free loan up to Rs 1 lakh for these farmers with landholding below one acre.

About

Universal Basic Income

    • It seeks to alleviate poverty by providing a basic income to all citizens of a particular state or geographical area, irrespective of their income, social standing, or employment status. The idea behind a basic income is that all are entitled to a reasonable income, notwithstanding their contribution to the economy.
    • The BIEN (Basic Income Earth Network) — a network of academicians advocating for UBI to all — describes basic income as a “periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.”
    • The five broad features of such schemes are:
      1. payments at periodic regular intervals (not one-off grants),
      2. payments in cash (not food vouchers or service coupons),
      3. payments to individuals,
      4. universality, and
    • How the UBI amount is determined is not a one-time exercise. It is determined by inflation in the economy.

Analysis

Arguments in favour of UBI

  • UBI promotes many of the basic values of a society which respects all individuals as free and equal. It promotes equality by reducing poverty.
  • It promotes liberty because it is anti-paternalistic, opens up the possibility of flexibility in labour markets.
  • A certain assured income also provides a safety net in a market economy where job losses, health shocks or death of breadwinners can push back families to below subsistence levels.
  • It is easier to implement with Aadhar and promotes efficiency by reducing waste in government transfers unlike anti-poverty schemes that suffer errors both of exclusion (the deserving being left out) and inclusion (the undeserving benefiting) even with the best of targeting.
  • Considerable gains could be achieved in terms of bureaucratic costs and time by replacing many of the social sector schemes with UBI.
  • As economic survey points out, transferring basic income directly into bank accounts will increase the demand for financial services. This would help banks to invest in the expansion of their service network, which is very important for financial inclusion.
  • It could even promote greater productivity. A pilot project by the Self Employed Women’s Association (SEWA) and UNICEF was implemented in Madhya Pradesh from June 2011 to November 2012, where unconditional cash transfers were provided to the people. Citing the study, the Economic Survey 2016-17 claimed that “people become more productive when they get a basic income”.
  • The UBI is expected to take care of half the nutritional requirements of a family of five in rural areas and one-third requirement of those who make the urban poor.
  • Compared to a farmer-centric scheme, UBI holds greater appeal as it does not discriminate based on occupation or land ownership, and does not depend on accuracy of targeting to work.
  • The budget for FY18 showed there were about 950 central sector and centrally sponsored sub-schemes in the country, which accounted for about 5% of GDP by budget allocation. The top 11 schemes accounted for about 50% of the budgetary allocation — the food subsidy or PDS is the largest programme, followed by the urea subsidy and MGNREGS.

Challenges in Universal Basic Income:

  • The real issue is the fiscal burden to implement such a scheme. Providing all individuals with a poverty line-equivalent UBI would cost around ?19 trillion or 11.4% of GDP. This would be 50% more than centre’s total tax revenues, and would certainly not be sustainable.
  • It is argued that people would rely on the timely cash transfers and not aspire for work and fail to contribute to production.
  • None of the places where UBI has been tried have levels of income disparity that exist in India. So, while the idea might work in Sikkim, it might not in, say, Bihar.
  • The reason for maintaining conditional social assistance is to “prioritize those at the bottom of the [income] distribution”. In a draft report released in 2018, the World Bank suggested reading the policy of basic income “through the lens of ‘progressive universalism”. While this is contrary to the (universal) basic income principle, it is important to pinpoint those “who are the most vulnerable, where they live, and how vulnerable they are”.
  • Replacing social sector schemes with cash transfers could be counterproductive. According to many economist dismantling centrally sponsored and central sector schemes such as Mid-Day Meal, Pradhan Mantri Gram Sadak Yojana, National Health Mission, Pradhan Mantri Awas Yojana, Sarva Shiksha Abhiyan, MGNREGS, and PDS could be counterproductive.

Global precedents:

  • Finland recently concluded a two-year experiment on its effects on unemployed citizens, which commenced in January 2017.
  • Earlier, 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.
  • Some cities in the Netherlands have launched municipal-level trials.
  • Barcelona in Spain has tested several potential changes to its anti-poverty programmes, including unconditional cash payments.

Case of Sikkim: In India, Sikkim would appear to be the ideal testing ground for UBI.

  • It is a surplus power generating state, which exports nearly 90% of the 2,200 MW that its hydel projects produce — ensuring a steady revenue stream that other states typically lack.
  • It has a literacy rate of 98% and a BPL population way below the national average.
  • Sikkim is expected to do away with most subsidies before launching its UBI scheme.
  • It would work well for the youngsters because it would give freedom to choose their work, it will be more futuristic and it will serve as a future production tool.
  • The state will also restructure some social schemes and the “skewed” tax structure to find more resources. With tourism being another source of revenue for the state – the state gets around 2.5 million tourists a year – there could be some cess in future to generate additional resource to implement the scheme.

Way forward:

  • It is desirable to go in for a UBI in a calibrated manner, starting with monthly pensions for all households having senior citizens and pegging this at a minimum Rs 1,000.
  • The UBI net can be gradually widened by giving beneficiaries the choice of either availing it or continue with their existing entitlements. Over time, people opting for money that they can spend as they see best will increase.
  • The Economic survey 2016-17 assumes that in practice any program cannot strive for strict universality. So survey proposes some alternatives.
    • First, survey targets bottom 75 percent of the population and this is termed as ‘quasi-universality’’. The cost for this quasi-universality is estimated to be around 4.9 percent of GDP.
    • Second alternative targets women, who generally face worse prospects in employment opportunities, education, health or financial inclusion. A UBI for women can reduce the fiscal cost of providing a UBI to about half. Giving money to women also reduces the concerns of money being used on ‘temptation goods’.
    • Third, to start with a UBI for certain vulnerable groups such as widows, pregnant mothers, the old and the infirm.

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 2018, 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.

Learning Aid

Practice Question:

Discuss the viability of Universal basic income in India.

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