Mentor’s Comment: According to the World Bank, India significantly reduced extreme poverty from 22.5% in 2011 to about 10.2% in 2019. However, ongoing challenges necessitate sustained efforts and targeted interventions to ensure that the benefits of economic growth reach all segments of society.

Universal Basic Income (UBI) has emerged as a prominent topic in India’s socio-economic discourse, especially after the discussions initiated during the Economic Survey of 2016-17. NITI Aayog’s reports have also emphasize a multi-sectoral approach to poverty alleviation, focusing on improving access to education, healthcare, sanitation, and housing.

Today’s editorial delves into the complexities surrounding the implementation of UBI in India, highlighting both its potential benefits and the challenges that must be addressed for effective execution.

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Let’s learn!

Why in the News?

There are ongoing discussions and debates surrounding the implementation of Universal Basic Income (UBI) in India.

• The main reasons for this are – existing economic disparities and job losses during the COVID pandemic, secondly the political concerns regarding funding in India, and thirdly, various countries have experimented with UBI, providing valuable insights

What are the significant hurdles to implementing UBI in India?

• Fiscal Constraints: Providing a basic income to all citizens would require substantial financial resources, estimated to be around 4.9% of GDP, which could strain the government’s budget and limit funding for other essential services.
  • A sudden influx of cash into the economy could also lead to inflation.
• Universal vs. Targeted Approach: A universal UBI could lead to inefficiencies, where wealthier individuals also receive benefits, wasting resources intended for the poor. This raises questions about how to effectively target those who need assistance the most.
• Implementation and Infrastructure Challenges: The lack of infrastructure for banking in remote areas can hinder effective cash transfers and program implementation.
• Political and Federal Landscape: Building consensus among diverse political parties and interest groups from various states can be challenging in India’s multifaceted political environment.
• Behavioral and Social Concerns: UBI might reduce the incentive for individuals to seek employment, potentially leading to a decrease in labor force participation and productivity. This dependency could undermine the goal of fostering self-sufficiency among citizens.

What modifications are necessary to make UBI financially feasible in India?

• Targeted Implementation: Instead of universal payments to all citizens, prioritize UBI for low-income and vulnerable households to reduce overall costs. For example, a semi-UBI model that provides basic income to specific demographics can be used.
• Funding Mechanisms: Redirect funds from existing welfare schemes and subsidies that are inefficient or prone to leakage into the UBI program. Implement progressive taxation to increase government revenue, ensuring that higher-income groups contribute more to fund UBI.
• Incremental Rollout: India needs to start with pilot projects in select regions to assess the impact and effectiveness of UBI before a nationwide rollout. This allows for adjustments based on real-world data.
• Administrative Efficiency: The Govt needs to leverage current Direct Benefit Transfer (DBT) systems to minimize administrative costs and then enhance digital banking infrastructure and mobile connectivity, especially in rural areas, to facilitate access to UBI payments.
• Monitoring and Evaluation: Establishing the mechanisms for tracking the distribution and impact of UBI payments to ensure transparency and accountability could help. We also need to incorporate beneficiary feedback into program design and implementation to adapt UBI according to the needs of recipients.
• Public Awareness and Support: Conduct awareness programs through all stakeholders to educate citizens about UBI’s benefits and address misconceptions.

What are the potential social and economic impacts of implementing UBI in India?

1) Economic Impacts:

• Poverty Alleviation: UBI could lift millions out of poverty by providing a basic income floor, addressing the needs of approximately 3.44 crore people living in extreme poverty in India.
• Increased Consumer Spending: By putting cash directly into people’s hands, UBI could boost disposable income, leading to increased consumption. This is particularly important as private consumption accounts for nearly 60% of India’s GDP.
• Economic Growth: Enhanced consumer demand could stimulate economic growth, especially in rural areas, benefiting sectors like agriculture and fast-moving consumer goods.
• Human Capital Development: With increased financial stability, families may invest more in education and healthcare, improving overall human capital and productivity in the long run

2) Social Impacts:

• Empowerment of Women: UBI could enhance financial independence for women, allowing them greater decision-making power within households and potentially leading to better outcomes for families.
• Reduction in Inequality: UBI has the potential to narrow income inequality by redistributing wealth more equitably across society, addressing the disproportionate wealth held by the top 10.
• Potential Behavioral Changes: Critics argue that providing income without work may lead to decreased motivation to seek employment, potentially fostering a culture of dependency among some recipients.

Way Forward: While UBI presents promising avenues for economic growth and social empowerment in India, careful consideration is needed regarding its design and implementation. Addressing potential drawbacks such as inflationary pressures and labor market distortions will ensure that UBI achieves its intended goals.

https://www.thehindu.com/opinion/lead/a-modified-ubi-policy-may-be-more-feasible/article68765963.ece