Note4Students

Economic Survey for the year 2016-17 has an entire chapter dedicated to the discussion on Universal Basic Income (UBI). This shows the Importance of this topic. UPSC loves to ask Questions on issues which are debatable and controversial and this Topic certainly meets both of these criteria.

Context

The Economic survey has endorsed universal basic income (UBI) in an annual report. UBI is a “powerful idea” and would be more effective at combating poverty than existing state benefits, according to the country’s 2016-2017 Economic Survey.

What is a Universal Basic Income?

A UBI would mean every single individual, regardless of their identity or economic status, is guaranteed a monthly income, transferred directly into their bank account by the government every month. It has three key components: universality, unconditionality and agency – the last condition as a way to give people a choice in how to spend the transferred money.

Argument Against Universal Basic income

1. Unaffordable-Assuming roughly 700 million people between ages of 18 and 60 will have to be provided Universal basic income of Rs 5000 in India that will be 3.5 trillion rupees, or about 3 per cent of the current GDP. That seems huge and unaffordable for a poor country like India.
2. Disincentive to work– It provides a disincentive to work, which in the grand scheme of things means we produce less as a society. critics state that this system would lead to a reduction in labour, as more people would be motivated to be ‘free loaders’
3. Over-Migration-If a country like India which do not have strong border controls, implements a guaranteed income, it will become a magnet for immigration. Inflow of migrants from countries like Nepal and Bangladesh would increase in India.
4. Impractical: Funding it would require raising tax rates to levels that are not politically feasible. For instance, according to a UK study by Joseph Rowntree Foundation, direct tax rates might have to be 50 per cent.
5. Misuse:The final argument against basic income is that the poor will use the money to fund personally or socially detrimental activities, such as gambling and alcohol consumption.

Arguments in favour of Universal basic income

1.  No direct disincentives: Being unconditional, it does not create any direct disincentives for those who want to work more and live better.
2.  By just letting people have the money and decide what they want to do with it, it gets away from the “nanny state” that so many Market economists despise.
3. Many economists believe that a basic income is a means to provide equal opportunity and counter exploitation.
4. In country like India there is the question of whether the current, multifariously fractured system of welfare, where multiple authorities give out different subsidies (money, food, housing, travel, education, healthcare), guided by their own priorities and targets (the young or the old, the mother or the child, the poor or the indigent), makes any sense. Why not have one universal basic subsidy that covers everything (perhaps except health and education) and let people decide how they will spend it, rather than trying to target subsidies based on our imperfect knowledge of what people need and deserve.
5. The number of extant government “welfare schemes” exceeds 350, though most of those programmes are not much more than a name, an office and a few underemployed bureaucrats. Moreover, many of our bigger schemes, like MGNREGS or PDS, are far from being well targeted or well run. Why not replace these 350 odd schemes by a single Universal Basic Income of, say, Rs 250 a week, which entitles every adult resident to a minimum weekly income as long as they verify their identity using Aadhaar (or in some other way) every week. The verification process will serve the dual purpose of making sure there is no fraud and discouraging the rich, who will find it unpleasant and a waste of time, from claiming a subsidy they don’t need.
6. At the very least, this will reduce poverty and free up the bureaucracy to do other things. But potentially, the benefits could be much larger. For example, the poor, liberated from having to worry about where their next meal or school fee will come from, might plan their lives better and invest more effectively in their children and their businesses
7. Assuming roughly 700 million people between ages of 18 and 60 are provided basic income of Rs 5000, that will be 3.5 trillion rupees, or about 3 per cent of the current GDP. That seems huge and unaffordable. But, the challenge may be surmountable. For instance, all the subsidies meant for the poor are more than 4 per cent of GDP (Centre plus states).Thus compared to subsidies it is a cheaper option.
8. Experiences with direct cash transfers in a range of countries, including Ecuador, India, Mexico, and Uganda, have not provided much evidence of any misuse of cash transfers; in general, the cash is spent on worthwhile goods and services.

What is needed?

1. UBI alone is not sufficient for the overall upliftment of poor. Two distinct sets of reforms are needed:
2. Broad-based economic reforms that would strengthen entrepreneurship, remove barriers to job creation, and increase the returns to human capital investments by the poor.
3. Specific reforms to allow the poor to gain better education and health

What does Economic Survey says on UBI?

1. ES advocated for the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty.
2. It suggests that a more efficient way to help the poor will be to provide them resources directly, through a UBI.
3. It will be an efficient substitute for a plethora of existing welfare schemes and subsidies.

Why ES say so?

1. Promoting social justice, reducing poverty, unconditional cash transfer that lets the beneficiary decide how she uses the money, employment generation by promoting labour flexibility.
2. It will bring in administrative efficiency as a direct cash transfer through JAM (Jan Dhan-Aadhar-Mobile) platform.
3. It will be more efficient as compared to the “existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor.
4. It can help to achieve considerable gains in terms of bureaucratic costs and time by replacing many of these with a UBI

Conclusion

Proposals for a universal basic income, fancied by utopian socialists and libertarians, may be premature in the advanced countries. But such schemes should not be dismissed in the developing world, where conditions are such that they could offer an affordable alternative to administratively unwieldy and ineffective welfare programs. Basic incomes are no panacea; but for overworked developing-country citizens living in extreme poverty, they would certainly be a relief.

Questions:

Q.1) Examine the arguments in favour and against introduction of universal basic income?

Q.2) Critically comment on recommendations made by the Economic Survey in introducing a universal basic income in India.