Making out a case for the other UBI in India

Source: The post is based on the article “Making out a case for the other UBI in India” published in “The Hindu” on 25th August 2022.

Syllabus: GS 3 Inclusive growth

Relevance: Universal Basic Insurance (UBI)

News: Universal basic income (UBI) and Universal basic insurance became a hot debate in policy circles across the globe, especially after the Covid Pandemic.

About Poverty Lines and Poverty Trap

Income shocks result in a free fall of those living on the line of basic living wages down towards the critical survival line. A fall below the critical survival line needs to be prevented as it can be catastrophic like a household can end up facing a poverty trap.

What are the three types of security nets?

1) A passive safety net focuses on those falling from basic living wages and prevents them a fall below the critical survival line. For example, it is basically a social assistance programme meant for the most income-deprived sections of society.

2) An active safety net which works like a trampoline so that those who fall on it are able to bounce back to basic living wages. This type of safety net is a scheme with a higher outlay.

3) A proactive safety net which acts like a launchpad so that those who fall on it will not only bounce back but will also move up beyond basic living wages. The third type of social security net is the most desirable option but requires immense resources and institutional capacity.

What are the various types of Social Security nets in India?

India operates the widest spectrum of social security schemes at a different level, which cater to the largest number of people than any other country.

(a) Food security: The National Food Security Act (NFSA) is the world’s largest food security programme.

Issues: There are issues of financial sustainability and leakages in the food security programme.

(b) Health Security: For the unorganised sector, there is the Ayushman Bharat Scheme. For the organised sector, the Employees State Insurance Corporation (ESIC) and Central Government Health Scheme (CGHS) are being run. Further, about 110 million people in India have private health insurance.

Issues: Despite these large-scale provisions, about 400 million Indians are not covered under any kind of health insurance.

(c) Income security: For the organised sector, the General Provident Fund (GPF), the Employees’ Provident Fund (EPF), the Public Provident Fund (PPF) and the New Pension Scheme (NPS) are being run. In the unorganised sector, the Pradhan Mantri Kisan Maan-Dhan Yojana (PM-KMY), the PM-KISAN scheme, the Atal Pension Yojana (APY), and the Mahatma Gandhi National Rural Employment Guarantee Act, are being run.

Issues: The Indian economy is informal in nature. Therefore, rolling out schemes such as unemployment insurance is difficult due to the challenges of identification of the beneficiaries. Further, there are huge fiscal implications (around 4.5% of GDP).

Why should India adopt Universal Basic Insurance (UBI)?

Insurance penetration (premium as a % of GDP) in India has been hovering around 4% for many years. However, it is around 17%, 9% and 6% in Taiwan, Japan and China, respectively.

Though the economy largely remains informal, data of the informal sector are now available both for businesses (through GSTIN, or Goods and Services Tax Identification Number) and for unorganised workers (through e-Shram portal, centralised database of all unorganised workers).

What should be done?

The Karnataka Model: It has developed a prototype of a social security portal based on such data, known as ‘Kutumba’. It is the social registry portal available as a blueprint. The government should implement it at national level.

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