Universal Basic Income

Syllabus: GS3/Financial Inclusion

Context

• Due to the phenomenon of jobless growth, i.e., the rise in output and labour productivity without the commensurate growth in employment generation, several countries have mooted the idea of a universal basic income (UBI).

About

• This idea has gained traction, especially since the International Labour Organization (ILO)’s most recent World Employment and Social Outlooklinks the decrease in jobs growth and the increase in inequality to a surge in automation and the use of artificial intelligence (AI). 
• Among the several suggestions on the ways to address this is a UBI.

What is Universal Basic Income (UBI)?

• It is a social and economic policy where a government provides all citizens with a regular, unconditional sum of money, regardless of their income, employment status, or other factors. 
• The primary goal is to ensure a basic level of financial security for everyone and to reduce poverty and income inequality.
• Key aspects of UBI:
  • Unconditional: Unlike some welfare programs, UBI is given to everyone without conditions.
    • There are no requirements to prove financial need or to work in order to receive the payment.
  • Regular: Payments are made on a regular basis (e.g., monthly) to ensure a steady income flow.
  • Universal: It is provided to all citizens, regardless of their income level or employment status.
  • Basic: The amount is typically designed to cover basic living expenses, though the exact amount can vary depending on the country or region implementing it.

Arguments in favour of Universal Basic Income in India

• Poverty Alleviation: UBI could significantly reduce poverty by providing a guaranteed income to all citizens, ensuring that even the most vulnerable populations have a basic level of financial security.
• Simplification of Welfare Programs: UBI could streamline and simplify the existing welfare system.
  • Instead of managing multiple targeted schemes with complex eligibility criteria, a universal payment system could be more straightforward and reduce administrative costs and inefficiencies.
• Reduction of Bureaucracy and Corruption: Direct cash transfers to all citizens would be more transparent and less susceptible to misuse compared to targeted subsidy programs.
• Support for Informal Sector Workers: Many people in India work in the informal sector without job security or benefits. UBI could provide a form of social protection for these workers, who are often excluded from traditional welfare schemes.
• Boost to Consumer Spending: By putting money directly into the hands of people, UBI could stimulate consumer spending, which is a key driver of economic growth. 
• Improved Public Health and Education: With a basic income, families will be empowered to afford healthcare and education, leading to improved health outcomes and higher educational attainment, which can contribute to long-term economic development.

Arguments Against Universal Basic Income in India

• High Cost: Providing a basic income to all citizens would require a substantial increase in government expenditure, potentially leading to budget deficits or increased taxes.
• Inflation Risks: There’s a concern that UBI could lead to inflation. It may also lead to mindless expenditures and add to debt.
• Reduction in Work Incentives: Some argue that a guaranteed income might reduce the incentive for people to work or seek employment, particularly in low-wage jobs.
• Implementation Challenges: Setting up and managing a UBI program in a country as diverse and complex as India could be challenging.
• Equity Concerns: Critics argue that resources could be better allocated to those in greater need, rather than distributing a basic income universally.
• Social and Behavioral Effects: There are concerns about the long-term social and behavioral effects of UBI. Some worry it might undermine traditional values of hard work and self-reliance or impact social cohesion.

Conclusion

• 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. 

Source: TH