Is it Viable for India?

Universal Basic Income
Universal Basic Income

Universal Basic Income (UBI) has been one of the debatable topics in India in the recent times. It aims at alleviating poverty by providing fixed income to every adult irrespective of their earning and employment status of a geographical area or a state. The objective behind a fixed income is that everyone gets a reasonable income irrespective of their contribution to the economy.

The proposition of UBI is decades old but has recently resurfaced globally as a means of redistribution of income. There are two primary reasons behind it –

  1. the rapidly growing inequality and
  2. advancement of technology affecting jobs and leading to loss of employment.

Basic Income Earth Network (BIEN) described UBI as- A periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement. It characterised basic income under five heads –

  1. payment will be given periodically and not at a time;
  2. payments will be given in cash and not as vouchers so that recipient can spend it according to his will;
  3. it will be given to every individual and not as a family or household;
  4. universal i.e. to everyone;
  5. payment would be unconditionally given i.e. irrespective of jobs or  income;

Implementation of UBI has both advantages as well as disadvantages. Advantages are that it will help in countering technological unemployment, end domestic abuse, provide support to unpaid care-workers, expand the middle class, reduce poverty, eliminate the requirement of social security etc. Additionally, if implemented successfully, it will bring improvements in mental and physical health, food security, education and reduce several stresses.  The disadvantages include de-motivation among workers, high implementation and running cost and inequality (as the same amount would be given to the poorest as well as to the richest).

Now, the question is if India is ready for a UBI and if implemented will it be a panacea for Indian economy?

The idea of a UBI gained momentum in the western countries due to the menace of automation-induced employment losses. But in India, finding a solution to chronic poverty & concealing the failure of government to achieve the desired result from the subsidies being provided to the poor is the main motive behind a UBI. Several questions have been raised on the effectiveness of the targeted schemes that was formulated and is run by the state and central government. Various government audits and studies have revealed manipulation in data and leakages in the system which have given undeserved benefits to the rich while depriving the deserving poor who actually need the support of the government. Targeting was found to be both inequitable as well as inefficient that gave licence for corruption which spawned throughout the industry of middlemen. It is therefore argued a UBI would help in overcoming such issues by providing every citizen a basic income.

A chapter on UBI in the Economic Survey of 2016-17 argued that, “… more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains”. Eradicating poverty is a righteous intent but in spite of considerable progress, India is still far away from attaining the desired outcome in this segment.  However, the factual question is – is UBI the foremost step in eradicating India’s poverty? There are strong political and economic reasons justifying that India must not implement UBI at least in the current circumstances.

First, the foremost issue is that India is yet to gain the required fiscal capacity for implementing UBI. The Economic Survey 2016-17 revealed that a 75% universality rate with a yearly UBI of ?7620/ year would cost approximately 5% of the Gross Domestic Product. Often is presumed that the resources can be raised through rationalization of subsidies & capturing a fraction of the revenue foregone in the account of different tax exemptions. However, it may not materialize because in most of the cases the foregone revenue is optical and outcome of inferior design. In any case, with the implementation of GST, a part of it has also become obsolete. Moreover, from the political perspective, it would be very hard to roll-back subsidies for creating fiscal space for UBI. It would rather be preferable for the government to decrease non-merit subsidies but utilizing the profits in increasing capital expenditure which would in turn foster development in the long run.

Second, much possibility is there that UBI can generate distortions in the labour market. A guaranteed, permanent and steady income without having to do any work will affect in mobility of labour and their participation. Moreover, there are chances of increment in wages as was seen after MGNREGA was implemented. Increased wages without equivalent rise in productivity level will harm India’s competitiveness.  Additionally, its implications would also be seen in the long run in terms of lower growth and higher inflation. The amount of UBI will of course determine the extent of distortion within the labourers.

Third, several complications might spring up depending on the nature of Indian politics. In all probabilities, for raising vote banks and increasing chances in elections, political parties would prefer to raise the amount of UBI or insist in bringing back subsidies by any means which would hold fiscal implications. It is certain that India is yet to prove that it has the ability to execute balanced budgets for a prolonged period. It is very common among political classes to announce premature triumphs & divulge fiscal profits.

An Alternative Approach

A better remedy to structural inequality than Universal Basic Income is Universal Basic Capital (UBC). UBC has made its footprints in the global policy circles as well. It is an approach where citizens retains the wealth they produce as shareholders of their joint enterprises. Many economists have also suggested dividend for the citizens, by giving them a percentage of public contributions on the stock market, mainly from the companies that utilizes public assets like publicly funded research or environmental researches.  Apart from this, there are three other solutions also: (i) focus must be on establishing state volume by implementing the recommendations made at the Second Administrative Reform Commission. (ii) Bolstering the lost middle-level establishments for aggregation of small enterprises & representation of labourers. (iii) The innovations of the economists might be better put on to thrive the recommendation for Universal Basic Capital than Universal Basic Income.


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