Gist of Universal Basic Income (UBI) from Economic Survey: Target IAS 2018 and Beyond

Overall Context:

A Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis. It is not an entitlement but a right by virtue of being a citizen of a country.

UBI is a step towards more equal society as it would promote Social equity, reduce poverty directly, and reduce risks related to unemployment, health etc. by providing a safety net.

But, In India’s context the most important benefit would be in terms of addressing misallocation, exclusion and leakages which grapples plethora of schemes run by government to root out poverty and inequality.

 

 

Misallocation is due to administrative incapacity and inefficient delivery. Exclusion is a natural consequence of misallocation and Leakages are due to big and complex delivery system.

UBI being delivered universally in bank account would address all the three problems. Added benefits would include increase in financial access due to increased volume of transaction which increases profitability of BC model of delivery.

There are concerns that UBI would lead to increase in conspicuous consumption and dropout from labour market but studies have found no evidence in this regard.

 

However, survey chalks out legitimate concerns. The success of UBI hings on success of JAM (Jan Dhan Yojana, Aadhar and Mobile Number)  and still 1/3rd of adults don’t have bank account.

The state and Centre need to agree on proportion of funding by each. Finally, taking away all schemes and benefits in lieu of UBI may not be politically feasible. The survey talks about floating the UBI scheme in gradual manner as a way forward.

 

Background:

Despite making remarkable progress in bringing down poverty from about 70 percent at independence to about 22 percent in 2011-12 (Tendulkar Committee), it can safely be said that “wiping every tear from every eye” is about a lot more than being able to imbibe a few calories.

It is also about dignity, invulnerability, self-control and freedom, and mental and psychological unburdening. From that perspective, Nehru’s exhortation that “so long as there are tears and suffering, so long our work will not be over” is very much true nearly 70 years after independence.

 

 

 

A Philosophical Case for UBI:

It has three components: universality, unconditionality, and agency (by providing support in the form of cash transfers to respect, not dictate, recipients’ choices) and shows a radical shift in thinking about social justice and productive economy. It is based on idea that:

• Just society needs to guarantee to each individual a minimum income, and

• Which provides the necessary material foundation for a life with access to basic goods and a life of dignity.

It provides various social, economic and administrative benefits to individuals, society and nation.

 

A. Social Justice

• It promotes many of the basic values of a society which respects all individuals as free and equal. It promotes liberty because it is anti-paternalistic; it promotes equality by reducing poverty.

 

B. Economic Benefits

• It promotes efficiency by reducing waste in government transfers.

• System it may simply be the fastest way of reducing poverty.

• UBI is also, paradoxically, more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains.

• They allow for more non-exploitative bargaining in labour market.

 

C. Administrative Benefits

• A UBI is also practically useful. The circumstances that keep individuals trapped in poverty are varied; the risks they face and the shocks they face also vary.

The state is not in the best position to determine which risks should be mitigated and how priorities are to be set and UBI restores decision making with citizens.

• By taking the individual and not the household as the unit of beneficiary, UBI can also enhance agency, especially of women within households.

• In India the case for UBI has been enhanced because of the weakness of existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor.

 

 

 

However, it is important to recognize that universal basic income will not diminish the need to build state capacity: the state will still have to enhance its capacities to provide a whole range of public goods.

UBI is not a substitute for state capacity: it is a way of ensuring that state welfare transfers are more efficient so that the state can concentrate on other public goods.

 

A Conceptual Case against UBI:

From an economic point of view there are three principal and related objections to a universal basic income.

A. The first is whether UBI reduces the incentive to work, which is highly exaggerated because the levels at which universal basic income are likely to be pegged are going to be minimal guarantees at best;

B. The second concern is, should income be detached from employment? But that is already done India in form of rich and privileged accepting non-work related income inherited from their parents.

So, receiving a small unearned income as it were, from the state should be economically and morally less problematic than the panoply of “unearned” income our societies allow.

C. The third is a concern out of reciprocity. Should income be unconditional, with no regard to people’s contribution to society? Answer to this is that individuals do contribute to society. UBI in fact will recognize non-wage work by individuals like housewife.

 

D. Temptation Goods: Would A UBI Promote Vice?

• Detractors of UBI argue that, as a cash transfer programme, this policy will promote conspicuous spending or spending on social evils or temptation goods such as alcohol, tobacco etc.

• But NSSO 2011-12 data shows that these goods form a smaller share of overall budget/ consumption as overall consumption increases.

This provides an indication that an increase in income from UBI alone will not necessarily lead to an increase in temptation goods consumption.

 

E. Moral Hazard: Would A UBI reduce Labour Supply?

• It is argued that free money makes people lazy and they drop out of the labour market because their income levels have increased.

• However controlled trials of government cash transfer programs in 6 developing countries {Honduras, Morocco, Mexico, Philippines, Indonesia and Nicaragua where cash transfer formed between 4 percent (Honduras) and 20 percent (Morocco) of household consumption.} find no significant reduction in labour supply (inside and outside the household) for men or women from the provision of cash transfers. Similar results were obtained from trials in Indian villages from state of Madhya Pradesh.

 

F. Another important question why universal basic income and why not targeted direct transfers.

 

What would be the potential cost of UBI?

The cost of UBI on government finances will depend upon the targets chosen and number of assumption. Based on 2011-12 poverty distribution and their consumption expenditure if a target poverty level of 0.45% is chosen, with UBI of INR 7620 per year (it corresponds to the annual consumption of marginal poor, who is at 0.45% threshold) and 75% coverage the financial cost of UBI will be 4.9% of GDP.

 

 

 

Conclusion:

UBI is a powerful idea whose time even if not ripe for implementation is ripe for serious discussion. UBI can help in wiping tears form all eyes, which Mahatma Gandhi dreamed of, but it would also have serious consequences in form of

• Uncompensated reward harming responsibility and effort;

• Effect on macro-economic stability of country; and

• Recognizing exit problem in India, UBI may become another add-on government programme, which would have come to mind of Mahatma Gandhi.

 

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