Universal Basic Income


The scheme of Universal Basic Income (UBI) to the Indian policy makers has been like that friend of yours who replies after weeks and keeps you hanging. Many policy behemoths have conducted dry run apropos to the same, only to not reach a definitive conclusion. Debates and discussions have been aplenty, against a scenario of tug-of-war between the two schools of thought.  

Hold on, what is Universal Basic Income?

Universal Basic Income (UBI), in straightforward terms is a policy mechanism wherein the government shall disburse a certain amount of money on a sequential basis to every citizen. Sounds simple, right? Except it isn’t.

The Indian Context when Ubi is considered

For as long as one can remember, the Indian policy makers seem to be fans of in-kind subsidy programs or schemes as opposed to direct cash transfers, the idea that UBI bats for. According to theEconomic Survey (2016-17) led by Mr. Arvind Subramanian, the central government has under its belt as many as 950 central sector and centrally sponsored schemes and sub-schemes, costing to the proximity of 5% of GDP. Now, that number itself conveys the importance of operational efficiency that needs to be employed to effectively carry out the concerned number of schemes. So besides the cost of the programs, administrative costs also creep into the picture.

Budget allocation against various schemes, to the tune of 5.2% of GDP  

UBI comes along with three components: a) Universality b) Unconditionality c) Agency. In order to successfully implement UBI, all the three components are to be addressed adequately. Before the explanation of these components, let us have a closer look into the idea through the conceptual prism. UBI is a radical paradigm shift, premised on the notion that a just society must acknowledge its members through the mechanism of a minimum income guarantee, for them to cover their basic needs and lay foundations of socially acceptable lives. That might raise your eyebrows as you could smell nonchalance in the narrative in general and the definition of a just society in particular. Now is the right time to expand on the above three components-

  1. As the very name suggests, the concept demands universal inclusiveness. Now, this is a problem because the subsidy programs that UBI is trying to substitute are exclusively dedicated towards the poor, not towards every societal member. Yes, you are thinking right. This means, that Mukesh Ambani and you will be receiving the same amount of money under the scheme. Folks the problem is not that you and a billionaire is subject to the same amount, but it is the answer to the question that does Mukesh Ambani need that money, in the first place? Considering the answer to be a no brainer, universal inclusion seems implausible.  
  2. Unconditionality stems from the perspective of non-discrimination. In a setting like India, satisfaction of this particular component appears to be relatively difficult, given that the concerned society is characterized by yawning differences right from the paycheck one draws to the culture one conforms to. The Indian exchequer does not possess the power to fuel unconditionality, which then again twists the narrative of social and welfare programs in the economy.
  3. Pro-concept economists believe that cash support will respect the recipients’ choice and not dictate it, which holds a hefty amount of gravitas. The component of agency suggests the upliftment of the much under-rated cognitive abilities of such recipients, especially the poor class who are invariably objects to government policies. A cash transfer will place responsibilities on their shoulders and push them for better economic decisions. Agency sets in liberation coupled with independence of the ignored entities.

The Red Signals:

With many obstacles to overcome, the following elucidation talks about some of the core roadblocks-

The inclusion dilemma:

Many economists argue in regard to the faulty inclusion mechanism that most of the subsidy programs have in place, wherein the resources are divided in an un-equitable manner among the states, due to which the benefits of such schemes fail to percolate to all. The basic logic demands that the states possessing larger poor population must receive greater amount of resources, except that does not occur. It is needles to enunciate on the consequences that ‘exclusion error’ brings about, which is more inequality. Well, it seems that the entry of UBI does not help much either. Policy makers are still scratching their heads to avoid the likewise mistake in the framework of UBI, to not include the obviously rich and at the same time do justice to the idea of universality. Mr. Subramanian in his economic survey briefly lays out four ways in which the feat can be achieved.

The misallocation curve  

Conspicuous spending:

Detractors of UBI opine that a direct cash transfer to the poor and the illiterate class and can give way to conspicuous spending, or in other words rise in the buy of ‘temptation goods’, besides them not being able to materialize this conjecture with actual numbers. One cannot deny its possibility, but can neither confirm its occurrence. The debate can definitely be about which side should receive the benefit of doubt. Nonetheless, Subramanian’s survey says that there has during the testing phase, there has been no statistical evidence of increase in the purchases of such goods. It is rather interesting to know that in Bhil tribal village, UBI brought about a drop in consumption of the so called goods, coupled with a rise in spending towards agricultural inputs.

The temptation goods consumption curve  

Moral Hazard associated with labour supply:

Yet another conjecture, which predicts a contracted labour supply post the UBI mechanism, comes into being. The anti-UBI economists argue that, liquid cash will dis-incentivize workers to put in the productive hours and they will choose leisure over work. The Economic Survey (2016-17), brings out the major findings of the Davala et al (Madhya Pradesh study), which has a different story to tell. The study talks about a positive jump in agricultural production and land cultivation. Also, the study reveals that liquid money helped the small and marginal farmers to borrow less and become independent. This tells a lot about the effects UBI can bring about on the back of correct implementation.

The Green Signals:

Hassle-free administration:

The in-kind welfare programs have always been demanding, as far as administration is concerned. The management of 950 plus schemes requires hefty planning along with field implementation that takes up much of the time of the involved government personnel. Now, what does UBI bring onto the table? Simplicity. With the JAM (Jan Dhan-Aadhar-Mobile) model in place, all that the beneficiaries have to do is withdraw money from their respective bank accounts. The nomenclature succinctly solves the issue of improper benefit distribution among the society members.

Mends system leakage:

The in-kind transfers are inefficient for a multiple of reasons, one being the heavy involvement of middle-men, who are nothing less than leakages. They misuse their position and divert resources for personal gains and are a major deterrent in the benefits not reaching to the needy households. UBI clearly throws them off the tracks as a direct cash transfer does not involve middle-men. Maintenance of logs for liquid cash is suitable and increases accountability amongst all parties involved.

Improved financial inclusion:

UBI shall be a great facilitator of financial robustness in the Indian banking system. Recent government initiatives, such as the likes of the Pradhan Mantri Jan Dhan Yojna (PMJDY) have provided impetus to the banking sector, witnessing an increase in active users by 40%. The employment of the scheme of UBI shall lead to increased financial inclusion of the modest class, with increased profitability on the part of banks. This will enhance the overall financial literacy amongst the backward section of the society and ensure credibility. Besides this, UBI also opens the door to formal credit as opposed the farmers’ tendency to rely on informal loans.

Financial inclusion, transfer size and bank correspondents’ commission  

The Coronavirus Signal:

As one witnesses rampant job losses and layoffs across hierarchies and sectors in the economy, it is not farfetched to consider the employment of the UBI scheme. Every nation is doing its best to get out of the chuckles of the virus and extend help and support to the ones in need. The US, global powerhouse is contemplating the idea of UBI, as the same is gaining popularity across the political sphere. According to The Economic Times, as many as 500 public figures have pleaded the administration to employ UBI. With coronavirus leaving millions stranded, one of the worst affected is the lot of 40 million migrant workers, who are at complete mercy of the novel virus. Besides not being able to travel back home, they lack two meals a day and nearly 89% of them have not been paid wages and are left with as bare as a sum of INR 200, reported BBC News. It needs to be accentuated that no short-term scheme can relieve such helpless individuals, who are battling sustenance and entirely cash stripped. At this juncture and against the said backdrop, the UBI mechanism is music to ears and sight to eyes since it can alleviate much of the troubles such folks are going through. A direct cash transfer also seems plausible at this point in time, as the in-kind transfers face the heat of operational inadequacy.         

My take:

Besides the obvious bridging of gap in income inequality and the social welfare it brings about, what do we as Indian citizens really want from Universal Basic Income? Wants might vary, but the end goal has to be mutually agreed upon. It is imperative for one to understand that UBI is not a transfer payment from the rich to the poor, rather it a common project characterized by a spirit of universality and unconditionality. What UBI asks for is a complete paradigm shift, and a shift that the nation’s policy makers have been reluctant to accept. It is not easy to bring in UBI and the number of deliberations are a testimony to the very proposition. A major threat to my eyes is the possibility of UBI becoming an add-on to the so-called welfare schemes and not a substitute. Though the public coffers do not have the capability to withstand such extravagant spending, politicians can exploit the opportunity for vote bank. The moment this happens, we can safely conclude that the purpose gets lost. Although, the government can look at niche ways with which it can start the mission of UBI and achieve conclusive results, such as floating the concept among the modest groups of widows, pregnant women, senior citizens, in order to gauge its effect. I feel that the program of Universal Basic Income shall not be viewed in isolation and the parameter of judgment shall be in comparison to the status quo. The assessment shall be in light to the result brought about by UBI basis the existent condition. I would want to leave the readers with a question-

Is UBI that tool with which the Indian democracy can achieve Mahatma Gandhi’s objective of, ‘wiping every tear from every eye’? Well, I think so.

UBI weight on GDP  

(Please note that the author has conformed to the figures from the Economic Survey (2016-17) since it is the latest piece of study on Universal Basic Income.)

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