Universal Basic Income:

Context: Sikkim government has decided to introduce UBI and implement it by 2022.

About UBI:

  • UBI is a minimum income (direct cash transfers) guaranteed by the state to every individual every month.
  • It is premised on the belief that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.
  • UBI is based on three principles:
  • Unconditionality: Under UBI scheme a fixed amount of cash will be transferred in beneficiary’s bank account unconditionally.
  • Universality: Under UBI, same amount will be transferred and it will be transferred in accounts of all beneficiaries.
  • Agency:Until now, poor were considered as objects of government policy, where the state decided what they needed in terms of food choice or shelter etc. but UBI considers poor as agents and partners of the state by giving them choice to decide what is best for them.
  • UBI would subsume other subsidies and allowances in order to free up resources so that a particular amount can be directed to people on a periodic basis.
  • The 2017 Economic Survey proposed UBI scheme as “a conceptually appealing idea” and a possible alternative to social welfare programs targeted at bringing down poverty.
  • UBI is a radical paradigm shift in thinking about both social justice and productive economy. It provides the necessary material foundation for a life with access to basic goods and a life of dignity.
  • UBI is not asubstitute for state capacity: it is a way ofensuring that state welfare transfers are moreefficient so that the state can concentrate onother public goods.

Benefits of UBI:

  • Social justice: A society that failsto guarantee a decent minimum income to allcitizens will fail the test of justice. Hence UBI, by guaranteeing a minimum unconditional income, promotes social justice.
  • Promotes constitutional ideals: UBI promotes following ideals:
    • Equality:UBI seeks to reduce poverty, and perhaps is the fastest way to achieve it, thereby it promotes equality among all sections.
    • Liberty:It promotesliberty because it is anti-paternalistic, opensup the possibility of flexibility inlabourmarkets.
    • Dignity: UBI protects individual’s dignity and gives choice to individuals in spending money on the basis of individual circumstances as the state is not in the best condition to decide individual priorities.
  • Promotes efficiency in government spending and better targeting: UBI seeks to replace the existing myriad subsidies given by the government under its social welfare schemes, riddled with misallocation, leakagesand exclusion of the poor,with a universal direct cash transfer.
  • Promotes human capital development: UBI allows for more non-exploitativebargaining power since individuals will no longer beforced to accept any working conditions and individuals can focus on skill upgradation and human capital enhancement.
  • Women empowerment: By taking the individual andnot the household as the unit of beneficiary,UBI can also enhance agency, especially ofwomen within households.
  • Insurance against shocks:Poor households often face shocks such as bad health, crop losses, natural disasters and automation related job losses and 60% individuals use personal savings to cope from these shocks.UBI provides insurance against these shocks.
  • Banking efficiency: Banks face losses in their Banking Correspondent based system due to low volume of financial transactions. UBI, by increasing volume of financial transactions, will increase the profitabilityof BCs and banks.
  • Misallocation of funds: The poorest areas ofthe country are often allocated a lower share ofgovernment resources than they require, because of their low administrative ability,and as a result genuine beneficiaries are missed.
  • Psychological benefits: UBI saves poor from mental anxiety resulting from concern about basic needs fulfillment. A studyon unconditional cash transfer programmein Kenya found significantincrease in the psychological wellbeing ofrecipients measured in terms of happiness,life satisfaction and stress.

Arguments against UBI:

  • Financiallyunviable: Government has to provide some basic essential services like education, health etc. in all circumstances and provisioning money for funding UBI, while providing these basic services, is not possible due to lack of finances.
  • Reduces the incentive to work: A free cash transfer to working individuals would reduce the need and incentive to work as it would take care of their basic needs.
  • Not reciprocal with ‘society’: Society is a scheme of social cooperation with a two way relation between society and individuals. UBI is unconditional cash transfer with no regard to individual’s contribution to society.
  • Conspicuous spending: Households, especially male members, may spend this additional income on wasteful activities.
  • Exposure to market risks (cash vs. food): Unlike food subsidies that are not subject to fluctuating market prices, a cash transfer’s purchasing power may severely be curtailed by market fluctuations.
  • UBI cannot replace all schemes:Simply providing money in beneficiary’s account cannot replace the delicate care and support needed by some vulnerable sections like pregnant women, children, elderly living alone and physically disabled etc.
  • Gender disparity induced by cash: Men are likely to exercisecontrol over spending of the UBI. This may notalways be the case with other in-kind transfers like specific benefits to women, elderly etc. otherwise provided by state through targeted schemes.
  • Limited financial inclusion: Nearly a third of adults in India still do not have a bank account.Hence, implementation of UBI will be a challenge and it may put too much stress on the banking system.
  • Difficult to wind up once started: Once introduced, it may become difficult for thegovernment to wind up a UBI in case of failure, due to political compulsions.
  • Universality defeats equality: UBI, if distributed among rich and poor alike, defeats the idea of equity and state welfare for the poor.

Principles that should guide a UBI and make it more implementable:

  • The principle of quasi-universality: The government can rethink about true universality, as the well-off can be omitted from the cash transfer schemes.
  • Gradualism:The UBI must be embraced in a deliberate,phased manner. A key advantage of phasingwould be that it allows reform to occurincrementally – weighing the costs andbenefits at every step. Gradualism can be adopted in following ways:
    • Giving choice to individuals between UBI and existing schemes.
    • UBI for women only.
    • Universalize UBI across some specific vulnerable groups only like for widows, pregnant mothers, the old and the infirm.
    • UBI in urban areas only which have good banking infrastructure and financial inclusion.
    • UBI for class of sections like implementing for poor at bottom 30%.

 

Case studies:

SEWA project in Delhi, 2011:As part of a United Nations Development Program–Government of Delhi partnership, the Self-Employed Women’s Association (SEWA) and the state government carried out a randomized controlled trial.The group gave a randomly selected group of 100 households in New Delhi 1,000 rupees per month. This amount was deposited into bank accounts opened in the name of the female head of participating households.
Observations:
o The experiment observed no reduction in per-capita calorie consumption in households receiving cash transfers, while expenditures on nutritious non-cereal items like pulses, fish, eggs, and meat increased.
o Authors found little evidence that cash transfers increased spending on alcohol or nonfood expenses.
• SEWA project in Madhya Pradesh:SEWA and the United Nations Children’s Fund (UNICEF) launched two pilots to examine the impact of unconditional, monthly transfers through modified random control trials in 2011-12 in eight villages.
Observations:
o The grant significantly improved living conditions, food sufficiency, and this had a concomitant, statistically significant impact on children’s nutrition.
o Neither pilot indicated a rise in alcohol consumption.
o The basic incomes also stimulated economic activity: the probability that individuals would diversify their economic activities was far greater in basic income villages than in control villages, and the number of hours participants worked similarly increased
• Finland:The Finnish government is handing out €560 ($583) tax-free every month to a group of citizens.Later however, the Finnish parliament introduced legislation requiring jobless people to work at least 18 hours every three months to qualify for unemployment benefits.
• Alaska:USA’s Alaska Permanent Fund is a state-owned investment fund established using oil revenues. Since 1982, it has paid out an annual dividend to every individual in Alaska. When oil prices were very high in 2015, the dividend was a whopping $2,072 per person. By 2017 the payment had whittled down to $1100 and can further dip to $800.
• Other countries including Holland, Canada, and Kenya have also experimented with basic income schemes.

Way forward:

UBI, though a noble idea, but should not completely outdo the existing essential social services/schemesespecially related to education and health which are not only the core functions of the state but also indispensable for meaningful and dignified individual existence. However, the alternatives to UBI can be explored like direct benefits transfers, conditional cash transfers and other income support schemes which also hold the potential to yield the above mentioned benefits.

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 energy produced, 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.Hence Centre and State can collaborate to implement and test the pilot project for the first time in an entire state.

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