UPSC MAINS 2019: Universal Basic Income

Universal Basic Income

Topic: Universal Basic Income

Topic in Syllabus: GS Paper 3 : Indian Economy

Universal Basic Income

Context:

Sikkim is set to become the first state in India to roll out Universal Basic Income (UBI), an idea that is, like many rights, both unconditional and universal — one that requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.

 

What is a Universal Basic Income?

  • A universal basic income (UBI) is an unconditional and universal right. It requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.
  • Universal basic income (UBI) is a model for providing all citizens of a country or other geographic area with a given sum of money, regardless of their income, resources or employment status.
  • The purpose of the UBI is to prevent or reduce poverty and increase equality among citizens.
  • UBI is also known simply as basic income. According to the advocacy group Basic Income Earth Network (BIEN), the essential principle behind basic income is the idea that all citizens are entitled to a livable income, whether or not they contribute to production and despite the particular circumstances into which they are born.

 

BIEN lists the following five defining characteristics of basic income:

  • Periodic: Distributed in regular payments,
  • Cash payment: Distributed as funds rather than, for example, vouchers for goods or services.
  • Individual: Each citizen (or adult citizen) receives the payment, rather than each household.
  • Universal: All citizens receive the payment.
  • Unconditional: Recipients are not required to demonstrate need or willingness to work.

 

The Economic Survey (ES) 2016-17 says the time has come to think of UBI for a number of following reasons

  • Social Justice – A UBI promotes many of the basic values of a society which respects all individuals as free and equal.
  • Poverty Reduction – Conditional on the presence of a well-functioning fnancial system, a Universal Basic Income may simply be the fastest way of reducing poverty.
  • Agency – The poor in India have been treated as objects of government policy. An unconditional cash transfer treats them as agents, not subjects.
  • By taking the individual and not the household as the unit of beneficiary, UBI can also enhance agency, especially of women within households.
  • Administrative Efficiency – It is a way of ensuring that state welfare transfers are more efficient so that the state can concentrate on other public goods.

 

What economic survey said about UBI?

  • The idea was reflected in the survey’s 9th chapter which said: “It is not an accident that Universal Basic Income has been embraced both by thinkers of the Left and of the Right”.
  • The current Government was also known to be considering implementing the Universal Basic Income for all citizens of the country, giving unconditional cash transfer of about Rs 10,000-15,000 on an annual basis.
  • The Economic Survey 2016-17 claimed that “people become more productive when they get a basic income”.
  • A Universal Basic Income promotes many of the basic values of a society which respects all individuals as free and equal.
  • Survey mentioned that “It promotes liberty because it is anti-paternalistic, opens up the possibility of flexibility in labour markets. It promotes equality by reducing poverty. It promotes efficiency by reducing waste in government transfers. And it could, under some circumstances, even promote greater productivity.”
  • Subsuming other schemes is seen as an essential prerequisite, given the sheer number of schemes and programmes run by governments in India.
  • The top 11 schemes accounted for about 50% of the budgetary allocation — the food subsidy or Public Distribution System (PDS) is the largest programme, followed by the urea subsidy and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
  • If the states were included, the number of schemes would be even larger.

 

Basic principles of UBI:

  • The main features of UBI are that it should be universal and not targeted, it should be unconditional and not tied to work or employment, and it should be in cash.
  • UBI is envisaged as a method of redistribution of resources from the rich to the poor.
  • It is envisaged as providing all persons (especially, the poor) with an income to lead a dignified life, with basic needs taken care of.
  • The UBI proposed in the ES is hostile to each of these objectives.

 

How does UBI work?

  • A basic income is a regular, periodic cash payment delivered unconditionally to all citizens on an individual basis, without requirement of work or willingness to work.
  • Typically, UBI would require subsumption of other subsidies and allowances in order to free up resources so that a particular amount can be directed to people on a periodic basis.
  • The differences among the several models being tried out across geographies relate mainly to the scale of the project, quantum of income, source of funding, and cuts in other transfers.
  • Under UBI, only those with zero income will receive the full benefits in net terms.
  • For those, who earn additional income over the basic income, the net benefits will taper off through taxation.
  • So even though the basic income is universal, only the poor will receive the full benefits.
  • The five broad features of such schemes are:
    • payments at periodic regular intervals (not one-off grants)
    • payments in cash (not food vouchers or service coupons)
    • payments to individuals
    • universality
    • unconditionally

 

Advantages of UBI:

  • UBI encourages people to find work. Many current welfare programs take away benefits when recipients find work, sometimes leaving them financially worse off than before they were employed. UBI is for all adults, regardless of employment status, so recipients are free to seek additional income, which most everyone does.
  • UBI reduces bureaucracy—with no-strings-attached coverage, determining who is eligible is far simpler and the cost of administering benefits is greatly reduced.
  • UBI increases bargaining power for workers because a guaranteed, unconditional income gives them leverage to say no to exploitative wages and abusive working conditions. Employers can’t push workers around as much.
  • UBI would give individuals freedom to spend the money in a way they choose. In other words, UBI strengthens economic liberty at an individual level. This would help them to choose the kind of work they want to do, rather than forcing them to do unproductive work to meet their daily requirements.
  • Universal Basic Income would be a sort of an insurance against unemployment and hence helps in reducing poverty.
  • UBI will result in equitable distribution of wealth only poor will receive the full net benefits.
  • Increased income will increase the bargaining power of individuals, as they will no longer be forced to accept any working conditions.
  • UBI is easy to implement. Because of its universal character, there is no need to identify the beneficiaries. Thus it excludes errors in identifying the intended beneficiaries – which is a common problem in targeted welfare schemes.
  • As every individual receive basic income, it promotes efficiency by reducing wastages in government transfers. This would also help in reducing corruption.
  • Considerable gains could be achieved in terms of bureaucratic costs and time by replacing many of the social sector schemes with UBI.
  • As economic survey points out, transferring basic income directly into bank accounts will increase the demand for financial services. This would help banks to invest in the expansion of their service network, which is very important for financial inclusion.
  • Under some circumstances, UBI could promote greater productivity. For example, agriculture labourers who own small patch of land and earlier used to work in others’ farm for low wages, can now undertake farming on their own land. In long term, this will reduce the percentage of unused land and helps in increasing agriculture productivity.

 

Argument against UBI:

  • Conspicuous spending: Households, especially male members, may spend this additional income on wasteful activities. 
  • Moral hazard (reduction in labour supply): A minimum guaranteed income might make people lazy and opt out of the labour market.
  • Gender disparity induced by cash: Gender norms may regulate the sharing of UBI within a household – men are likely to exercise control over spending of the UBI. This may not always be the case with other in-kind transfers.
  • Implementation: Given the current status of financial access among the poor, a UBI may put too much stress on the banking system.
  • Fiscal cost given political economy of exit: Once introduced, it may become difficult for the government to wind up a UBI in case of failure.
  • Political economy of universality: ideas for self-exclusion Opposition may arise from the provision of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for the poor.
  • Exposure to market risks (cash vs. food): Unlike food subsidies that are not subject to fluctuating market prices, a cash transfer purchasing power may severely be curtailed by market fluctuations.

 

Global precedents:

  • Several governments have tried out UBI policies.
  • Finland recently concluded a two-year experiment on basic income’s effects on unemployed citizens.
  • Earlier, the government of Ontario, Canada, had announced a plan to test a kind of unconditional income guarantee.
  • It enrolled participants in three areas of the province for a guaranteed income for up to 3 years.
  • Some cities in the Netherlands have launched municipal-level trials.
  • Barcelona in Spain has tested several potential changes to its anti-poverty programmes, including unconditional cash payments.
  • Besides, two US-based nonprofits have completed pilot studies and are preparing to launch privately-funded basic income experiments on a large scale.
  • The charity GiveDirectly is reportedly working on plans to initiate a 12-year randomised controlled trial (RCT) to test the effects of UBI in villages in rural Kenya.
  • The Silicon Valley nonprofit research lab Y Combinatory Research has completed a feasibility study in Oakland, California, and is now finalizing the design of an RCT that will involve 3,000 participants in two American states.
  • In September 2018, nearly 600 people signed up for a UBI experiment launched by Swiss filmmaker Rebecca Panian in the northern Swiss town of Rheinau.
  • Participating adults will receive a monthly UBI of 2,500 Swiss francs (about Rs 1.79 lakh) for a year. The project, which is estimated to cost CHF 3-5 million, will be crowd funded or funded by donations from institutions.

 

Sample Question:

Critically analyze the concept of Universal Basic Income? Does it Feasible for India? Discuss.