Viability of Universal Basic Income in India

Syllabus: Indian Economy

Source: TH

Context: With automation and AI reducing job growth, the idea of UBI is gaining momentum globally, including in India. While some argue that UBI can address the lack of demand and rising inequality, others suggest that India’s focus should be on expanding social safety nets rather than a full UBI.

What is Universal Basic Income (UBI)?

It is a social welfare scheme that provides a fixed, unconditional cash transfer to all eligible individuals or households, irrespective of their income or employment status. The concept of Universal Basic Income (UBI) appealing in the 2016-17 Economic Survey, however, the current CEA, V Anantha Nageswaran, has dismissed it, asserting that it is unnecessary for the country.

The potential of Universal Basic Income (UBI) in combating poverty:

• Direct financial support: UBI provides direct financial support to individuals and families, helping them meet basic needs, such as food, healthcare, and education.

• Financial inclusion: UBI can encourage financial inclusion by promoting bank account usage and formal financial transactions.

• Elimination of targeting errors: UBI eliminates targeting errors, as it is provided universally, reducing administrative costs and ensuring coverage of all eligible individuals.

• More autonomy: A study by SEWA Bharat found that women in rural India who received cash transfers had greater autonomy in decision-making. UBI empowers recipients by giving them the flexibility to spend the cash according to their priorities, including investments in livelihoods and education.

• UBI empowers recipients by giving them the flexibility to spend the cash according to their priorities, including investments in livelihoods and education.

• Social Inclusion: UBI fosters social inclusion by providing financial support to marginalized populations, helping them participate more fully in society.

• Counter-Cyclical Effect: UBI’s unconditional nature makes it counter-cyclical, automatically expanding during economic downturns, providing a safety net for those facing job loss or economic hardship.

• Human dignity: UBI recognizes the intrinsic value of every individual by providing them with the means to lead a life of dignity and self-determination. It empowers recipients to make choices that align with their aspirations and needs.

Economic impact and challenges of implementing UBI in India:

• Cost and fiscal sustainability: Implementing UBI is costly and requires significant financial resources, potentially necessitating higher taxes, spending cuts, or increased debt. It can also lead to inflation and hinder economic growth. Economic Survey of 2016-17 estimated that a UBI of 7,620 per year for every Indian would cost about 4.9% of GDP.

• Economic Survey of 2016-17 estimated that a UBI of 7,620 per year for every Indian would cost about 4.9% of GDP.

• Perverse incentives: UBI may reduce work motivation and productivity, creating a culture of dependency. It could discourage skill development and training, as some may opt for a basic income without pursuing income-generating opportunities.

• Inflationary pressures: The widespread distribution of a fixed income may drive up prices for goods and services, as businesses adjust pricing strategies to capture the additional income in the market.

• Potential for dependency: UBI carries the risk of fostering dependency on government support, potentially leading to complacency and reduced motivation for personal and professional growth.

• Implementation Challenges: India faces issues in public service delivery, including identification, targeting, monitoring, and accountability. UBI requires reliable data, technology, and strong institutions to prevent corruption, leaks, and exclusion errors. Incomplete Universal Aadhar enrollment complicates beneficiary identification and targeted service delivery.

• Incomplete Universal Aadhar enrollment complicates beneficiary identification and targeted service delivery.

Alternatives to Universal Basic Income (UBI) as approaches to poverty alleviation:

Alternatives | Description

1. 1.Targeted Cash Transfer Programs | Focus on specific vulnerable groups, such as LPG subsidies under Direct Benefit Transfer (DBT).
2. 2.Expand Employment Guarantee Schemes | Improve schemes like MGNREGA, which provide rural households with guaranteed employment and increased income.
3. 3.Strengthen the Public Distribution System (PDS) | Improve distribution of subsidized food grains and essential commodities to ensure food security for low-income families.
4. 4.Invest in Skill Development | Enhance the employability of the underprivileged through skill development and vocational training programs.
5. 5.Promote Microfinance and Microcredit | Support small businesses through microloans, particularly targeting women, to generate income (e.g., SHGs like Kudumbshree, and Jeevika).

Conclusion

Each of these alternatives can be tailored to address specific poverty challenges in India. A combination of these approaches, depending on the region and population in question, can lead to a more comprehensive and effective strategy for poverty alleviation.

Insta Links:

• The Rajasthan Minimum Guaranteed Income Bill 2023

• Universal basic income

Mains Links

The Universal Basic Income, the implementation of which has repeatedly been debated in India, seeks to alleviate poverty. Critically discuss the possibility of UBI in India. (15M)