Jan Dhan 2.0: Consider a Universal Basic Income

Syllabus: GS1/ Social Empowerment

Context

• Jan Dhan 2.0 can enable us to envision a social safety net in the form of a universal basic income (UBI).

Universal Basic Income (UBI)

• A basic income is an income unconditionally granted to all citizens on an individual basis, without means test or work requirement.
  • It is a form of minimum income guarantee that is being paid irrespective of any income from other sources.
• UBI has following components:
  • Universality: UBI for all
  • Unconditionality: UBI without any conditions.
  • Agency: UBI can make a citizen move away from being a subject of government welfare programmes to agents of its own change.
• The proposal is simple: Apart from fulfilling its usual duties of governance and paying for the security, healthcare and education of people, the state should deploy public funds to grant every adult a certain sum of money for personal use every month. 
  • As a policy concept, a UBI is redistribution at its most literal; it puts everyone on the state’s payroll. 

Significance of UBI

• It will guarantee to each individual a minimum income for a dignified life with access to basic goods.
• The payments could help stabilize the economy during recessionary periods.
• It will promote social justice by reducing poverty.
• Increase the purchasing power of every poor which will further increase aggregate demand.
• Easy to implement because no identification of the beneficiary is involved.
• Reduce the wastage of government money because its implementation is very simple.

PMJDY & universal basic income/cash transfer

• About:
  • As a mechanism, however, PMJDY’s most heroic role may be yet to come. The scheme can be envisioned for a social safety net in the form of a universal basic income (UBI).
• How?
  • Instead of having many different forms of welfare programmes targeted at the poor, and administered through government bureaucracy, just make a simple unconditional regular cash transfer to every adult.
  • The idea also resonates with a recent policy shift in India towards direct cash transfers, under the acronym JAM (Jan Dhan Yojana, Aadhaar cards, Mobile money platforms), which involves rolling all subsidies into a single lump-sum cash transfer to households.
•  Features of a universal cash transfer:
  • Universal: It is universal and not targeted at the poor alone, thereby removing the numerous problems associated with means-testing. 
  • Cash transfer: It is a cash transfer, so that there is no need to provide in-kind transfers (for example food stamps) or subsidies for certain goods and services (for example housing support), both of which come with standard inefficiencies associated with interfering with market forces. 
  • Unconditional: It is unconditional, so that it is not contingent on the recipients conforming to stipulated norms of behaviour, such as looking for jobs or having children enrolled in schools, and the problems of monitoring that this entails.
• Benefits for PMJDY:
  • If  PMJDY accounts were to be used substantively as a universal basic income, the financial savings account of the individuals would be immediately increasing.

Challenges & objections

• Money for nothing: The usual objection to this ‘money for nothing’ is the moral hazard it could pose. 
  • If cash handouts start showing up in bank accounts, would it not make recipients too lazy to work? 
  • The fact that a section of the population is earning an income without having to work is likely to create resentment.
• Affordability: 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 & we may still have over a billion Indians to pay. 
  • Even a monthly UBI of ₹1,000 each, a pittance by today’s standards, would imply an annual fiscal outgo of ₹12 trillion. 
  • This is about ₹2 trillion more than the current year’s budget for infrastructure and not an attractive proposition at this juncture.

Way ahead

• If cash transfers are to be universal, the budgetary costs will be quite high. So, the universal cash transfer scheme is not feasible without raising additional taxes. 
• One simple answer to these challenges would be to keep focus on accelerating economic growth and making it more inclusive.