The idea of Universal Basic Income (UBI) has resurfaced due to global job growth stagnation attributed to automation and AI, alongside rising youth unemployment in India.
Basics about UBI
- UBI is a social welfare program that provides a regular, unconditional income to all citizens of a country.
- The goal of UBI is to reduce poverty, improve financial stability, and reduce income inequality.
Why Universal Basic Income (UBI) Is Needed
- Job Growth Challenges: A recent International Labour Organization report reveals that global job growth is lagging due to automation and AI, with youth unemployment in India being particularly alarming.
- Jobless Growth: The phenomenon of “jobless growth” leads to rising productivity without increased job creation, worsening economic inequality.
- Countering Inequality: As AI displaces jobs, UBI can provide essential financial support for those affected, ensuring a minimum level of economic security and promoting a more equitable distribution of wealth.
- The primary purpose of UBI is not to directly address unemployment but to alleviate the suffering that arises from economic instability.
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Background on UBI in India
- The concept gained traction following the 2016-17 Economic Survey, which suggested replacing inefficient welfare schemes with direct income transfers.
- Investments in the JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure have made direct benefit transfers (DBTs) more feasible.
Pros of Universal Income Transfers
- Reduced Administrative Costs: Universal transfers minimise targeting and exclusion errors, making implementation more efficient.
- Less Leakage: With fewer intermediaries involved, there are lower chances of funds being lost or misappropriated.
- Reduced Corruption: A universal approach can limit opportunities for corruption compared to targeted programs that require extensive oversight.
- Avoiding Work Disincentives: Universal schemes do not create disincentives for work, as all individuals receive the benefit regardless of their employment status.
Cons of Universal Basic Income (UBI)
- Financial Feasibility: Implementing UBI may require substantial budgetary allocations, potentially leading to increased taxes or cuts in other essential welfare programs.
- Overlapping Welfare Programs: Critics argue that UBI could undermine existing targeted welfare schemes designed for specific demographics, such as the elderly or the unemployed, leading to potential gaps in support.
- Question of Equity: Some argue against providing benefits to wealthy individuals, suggesting that resources could be better allocated to those in greater need.
- Limited Impact on Long-term Poverty Alleviation: UBI is seen primarily as a tool for coping with immediate financial needs rather than addressing the underlying structural issues of poverty and unemployment.
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The Case for Universal Basic Income: Should the Wealthy Receive It?
- A common concern is whether wealthy individuals should receive Universal Basic Income (UBI). Critics argue this is unjust, but this view overlooks how tax systems work.
- In advanced economies, individuals pay taxes and receive benefits based on their circumstances.
- Wealthy recipients would ultimately contribute more in taxes than they receive from UBI, meaning the net impact would be negligible.
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Evaluating Universal Basic Income (UBI)
- Feasibility vs. Desirability: While UBI is appealing for addressing unemployment and poverty, budgetary constraints raise questions about its feasibility in implementation.
- Existing Cash Transfer Schemes: Current programs, such as cash transfers for farmers and women, exist but do not fulfil the universal criteria of a true UBI, which should be inclusive and not target specific groups.
- Examples:
- Rythu Bandhu Scheme: Implemented in Telangana to provide support to farmers.
- PM-KISAN: A national scheme aimed at assisting small landholding farmers.
- Comparing with Other Safety Net Policies: UBI must be assessed alongside existing safety net policies, which can be:
- Targeted Programs: Aimed at specific demographic groups (e.g., women, elderly).
- Conditional Assistance: Based on socio-economic criteria (e.g., for farmers or the unemployed).
- In-Kind Support: Such as the Public Distribution System.
- Employment-Based Support: Conditional on participation in programs like MGNREGA.
Way Forward
- Modified UBI: A more viable approach could be a limited universal income transfer scheme pegged at 1% of GDP, providing approximately ₹144 per month per citizen.
- Current poverty lines suggest that this amount aligns closely with existing standards, indicating its potential effectiveness in alleviating economic hardship.
- Addressing Implementation Challenges: To ensure the success of universal income transfers, logistical challenges must be addressed, including:
- Ensuring access to cash-out points.
- Minimising technical failures related to payment systems like unavailability of ATMs.
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Conclusion
Given fiscal constraints and existing policies, a modified UBI can serve as a foundational approach. This framework allows for the integration of additional targeted transfers for vulnerable groups, creating a more comprehensive social safety net.
October 18, 2024
