- Universal basic income and it’s feasibility as a solution in India.
What is Universal basic income?
- It is premised on the idea that a just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity.
- it requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.
- UBI has three components:
Argument in favour of UBI
- Poverty and vulnerability reduction — Poverty and vulnerability will be reduced in one fell swoop.
- Choice — A UBI treats beneficiaries as agents and entrusts citizens with the responsibility of using welfare spending as they see best; this may not be the case with in-kind transfers.
- Better targeting of poor –– As all individuals are targeted, exclusion error (poor being left out) is zero though inclusion error (rich gaining access to the scheme) is 60 percent.
- Insurance against shocks — This income ﬂoor will provide a safety net against health, income and other shocks
Improvement in financial inclusion — Payment – transfers will encourage greater usage of bank accounts, leading to higher profits for banking correspondents (BC) and an endogenous improvement in financial inclusion. Credit – increased income will release the constraints on access to credit for those with low income levels.
Psychological benefits — A guaranteed income will reduce the pressures of finding a basic living on a daily basis.
Administrative efficiency — A UBI in place of a plethora of separate government schemes will reduce the administrative burden on the state.
Argument against UBI
- Conspicuous spending — Households, especially male members, may spend this additional income on wasteful activities.
- Moral hazard (reduction in labour supply) — A minimum guaranteed income might make people lazy and opt out of the labour market.
- Gender disparity induced by cash — Gender norms may regulate the sharing of UBI within a household – men are likely to exercise control over spending of the UBI. This may not always be the case with other in-kind transfers.
- Implementation — Given the current status of financial access among the poor, a UBI may put too much stress on the banking system.
- Fiscal cost given political economy of exit — Once introduced, it may become difficult for the government to wind up a UBI in case of failure.
- Political economy of universality – ideas for self-exclusion Opposition may arise from the provision of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for the poor.
- Exposure to market risks (cash vs. food) — Unlike food subsidies that are not subject to ﬂuctuating market prices, a cash transfer purchasing power may severely be curtailed by market ﬂuctuations.
Alternatives to UBI
- Rationalization of subsidies, better targeting and operational efficiency.
- It needs to move to cash transfers at an accelerated pace with the use of Jan-Dhan, Aadhaar and mobile.
- This will help reduce costs and spare resources for capital spending to augment growth.
As history has shown, the best way to pull people out of poverty is sustained higher growth. Therefore, rather than creating permanent doles like Universal Basic Income for the entire population, which will be impossible to reverse in the future, the idea should be to save costs with better targeting. This will help create the necessary conditions for higher growth which will decisively lift people out of poverty.