Universal Basic Income

Context:

India  has over half a billion Jan Dhan accounts, in less than a decade under its Pradhan Mantri Jan Dhan Yojana.

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• As a mechanism, however, Pradhan Mantri Jan Dhan Yojana most heroic role may be yet to come. 
  • As it could enable us to envision a social safety net in the form of a universal basic income (UBI).
• In 2020, Jan Dhan’s reach proved useful during the pandemic caused by Covid-19. 
  • During  the pandemic,  monthly aid of ₹500 for three months was announced for each of the 200 million odd Jan Dhan accounts held by women.
• As poverty declines and our tax base expands , UBI as a concept can be fiancially viable if the coverage is limited to those who are below the poverty line.
  • According to the UN Multi Dimensional Poverty Index , a total of 415 million people moved out of poverty in India within just 15 years from 2005/2006 to 2019/2021.

About Universal Basic Income:

• UBI is a government program in which every adult citizen receives a set amount of money regularly. This payment is intended to cover the basic needs of individuals, such as food, shelter, and clothing, and is provided without any requirement for work or means testing.
• A UBI, according to the Economic Survey 2016-17, has three key characteristics: 

• • Universality: every citizen receives cash payments, 
  • Unconditionality: a basic income should be unconditional (or it should employ conditions that do not violate inclusiveness).
  • Individuality: a basic income should be designed to cater to individuals, not households, since it is considered a truly individual right.

Benefits of Universal Basic Income(UBI):

• Safety Net: UBI envisages an uncompromised social safety net, a concept that is expected to gain traction due to uncertainties on account of globalization, technological change, and automation.
  • For example: In eventuality of  job losses due to the advent of Artificial Intelligence, UBI could provide a safety net.
• Checking leakage: The effectiveness of the targeted schemes such as the Public Distribution System run by central and state governments have always been in question due to corruption.
  • UBI could prove to be a game changer through its direct cash transfer approach.
•  Envisaging Right to a Minimum Income: UBI gives concrete expression to the idea that we have a right to a minimum income, merely by virtue of being citizens. 
  • This right requires that the basic economic structure be configured in a way that every individual gets basic income.
• Better Coverage: UBI, universality circumvents the contentious issue of exclusion and inclusion errors that are inherent in needs-based targeting. 

• Labor Compatible: A universal transfer would be more labor compatible than most programs, as it removes the price effect of transfers (i.e., the reduction in labor supply to avoid a reduction in benefits).
• Poverty Reduction: If the basic income were set above the poverty line, it should theoretically lead to the complete elimination of absolute poverty.

Challanges:

• Moral Hazard: Another argument against UBI is the moral hazard one propounded by Gandhiji against charity – free money makes people lazy and they drop out of the labor market.
• Implementing  in Highly Disparate Income Societies: 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.
• Counterproductive Approach: According to economist Bhalchandra Mungekar, replacing schemes such as Mid day Meals, and PDS with cash transfers could be counterproductive.
  • As, the Mid-Day Meal Scheme provides hot, cooked meals and plays a crucial role in improving children’s nutrition and incentivizing school attendance, particularly for underprivileged sections.
• Burden on Public Exchequer: Implementing UBI on a large scale can be expensive, and funding sources need to be identified to cover the costs without destabilizing the economy.
  • For Example: The Economic Survey of 2016-17 estimated that a UBI of Rs. 7,620 per year for every Indian would cost about 4.9% of GDP, which is more than the combined expenditure on food, fuel, and fertilizer subsidies.
• Inflation: Concerns have been raised that injecting a large amount of money into the economy through UBI could lead to inflation, potentially eroding the purchasing power of the basic income.
• Implementation Challenges: Distributing UBI effectively and fairly requires robust administrative systems and may face political and logistical hurdles.
  • For Example: According to the World Bank, there are only around 20 ATMs for every 100,000 adults in India, compared to 70 in South Africa and 114 in Brazil (Zhong, 2017). 

Way Forward:

• Gradualism: The UBI must be embraced in a deliberate, phased manner. A key advantage of phasing would be that it allows reform to occur incrementally – weighing the costs and benefits at every step.
• Data-Driven Approach: Utilize data analytics to identify the regions that would benefit most from UBI. This ensures that the program is directed toward the areas with the highest poverty rates and income disparities.
• Monitoring and Evaluation: Regular assessments can help identify areas for improvement and ensure that the program is achieving its intended goals.
• Rollout on Pilot Basis:  Although maximum coverage is the conceptual aim of a UBI, its beneficiary list need not strictly be ‘universal’. The well-off would certainly have to be kept out in the initial phase of rollout.
• Comprehensive Development Programs: Integrate UBI with complementary programs that address structural disparities. 
  • For example: Allocate resources for quality education, healthcare, skill development, and infrastructure improvement in economically weaker areas.

News Source: Livemint