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The anomaly of Universal Basic Income Scheme in India

             Prof.Vikku Agrawal, ISME

The idea of Universal Basic Income (UBIS) has remained popularly controversial through the world for almost a decade now. Its implementation across countries has had protagonists and antagonists in the form of economists, analysts, political parties, the voters’ base, the tech entrepreneurs like Elon Musk, Mark Zuckerberg, even Richard Branson and all the relevant stakeholders.

The blog examines my opinions on the introduction and implementation of Universal basic income in India, given the current scenario. Various secondary sources of information and views from renowned economists have been sought in framing my thought trajectory.

Towards universal social protection

As per IMF “Universal basic income is an income support mechanism typically intended to reach all (or a very large portion of the population) with no (or minimal) conditions”

Two differentiating traits of Universal basic income are i) Universality i.e. a large number of individuals of the society covered; ii) Unconditionality.

Internationally, economic growth of nations and their conventional development policy measures have been considered incomplete so long as inequitable economic structures remain. Hence, the issue of social security has attracted attention on the international policy agenda and the idea of universal basic income has been brought up.

Glimpses from the world

Over the years several experiments and pilot projects on UBI have been run across USA, Europe, Asia and Africa a few of them being:

  • Finland started the programme in 2017 to address their problem of unemployment by giving €560 to its 2000 jobless people. The government stopped it in the month of Jan 2019. They would look for a ‘better’ welfare scheme to support their unemployed population.
  • The American charity GiveDirectly is running an experiment in Kenya since 2017, wherein about 120 villages covering 16,000 people have been identified for giving unconditional basic income for the next 12 years. This is a project undertaken to study the economic effects of guaranteed basic income on the beneficiaries against those not receiving it.
  • Y Combinator, a Silicon Valley start- up accelerator is researching on Minimum basic income in the USA. They have already finished a project in Oakland, California. Their new project has chosen a study group of 3000 people out of which a third will receive $1000 a month for five years and the balance will get $50 during their course of study. The intent is to understand the effect of this income on the way people utilise their free hours as well as to observe any remarkable change in their health, education, crime rates and overall well-being.

In 2016, Swiss voters rejected the proposal of guaranteed basic income for its population.
The pilots run so far have been an assortment of successes and failures both but surprisingly none of them have yet adopted it as a national social security system on an ongoing basis. Apparently, all those nations grieving over general unemployment and pondering over technology replacing human force in the next 20-30 years also want a better conviction on its feasibility in the long run.

UBI in India

A UNICEF backed project led by sociologist Sarath Davala and Guy Standing was conducted in India back in 2011 till 2013 for a group of 6000 people in the villages of Madhya Pradesh. The research showed a considerable positive change in the spending patterns of a vast majority of the study group wherein their additional income was used in yielding investments like livestock, children education. So the overall indication of this pilot run was that it could help people come out of poverty and lead and a healthier happier life.

Post this successful pilot project for an iota of our country’s population, Universal Basic Income was re-proposed in the Economic Survey of 2016-17 as a solution to radical alleviation of abject poverty in India. The Economic Survey takes 75% of population as universal for UBI purpose.

The most prominent advantages quoted in the Economic survey of 2016-17 associated with UBI introduction in India are:
i)                    To save the misallocation of resources in the existing schemes of the central government.
ii)                  Improvement in financial inclusion
iii)                Increase of credit by the banks
iv)                Psychological benefits to the poor
v)                  The beneficiaries entrusted with the money to be spent as per their choice instead of a set of schemes and subsidies imposed on them.
Arguments against UBIS

“Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”

Replacement of existing subsidies: As per the budget of 2016-17, about 950 central sector and centrally sponsored sub-schemes account for 5% of GDP by budget allocation. Further, a UBI that reduces poverty to 0.5 percent would cost between 4-5 percent of GDP, assuming that those in the top 25 percent income bracket do not participate.

While this manifests an ideal trade off with no extra burden on the government, UBI can’t be introduced at the cost of public health, education and other welfare expenditures. Replacing existing welfare expenditures with cash transfers will adversely impact the development goals of India. As per the Economic Survey 2016-17, Public Distribution System (PDS) is among the top subsidy schemes that account for about 50% of total budgetary allocation followed by urea subsidy and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).India’s HDI index has notched up to 130 out of 189 countries (UNDP report 2018) after the governments’ concerted efforts in the areas of health and education. A lot is yet to be done!  

Additionally, now that the subsidy is taken away, the beneficiary ends up spending a higher amount than before on the same set of utility and essential goods, their basic necessities included. So the challenge invariably remains!

Even more, the amount transferred to them as the basic income may not be inflation indexed as frequently so the benefits likely to arise out of that amount diminish over a period. 

Any benefit extended over and above the existing benefits may translate into higher tax burden on the already constricted base of tax payers. If not that, it may connote a build on the existing stringent fiscal deficit target of 3.3%.

Financial Freedom and financial inclusion: Direct cash transfer to the beneficiaries in their respective accounts offers them the independence to use funds as per their requirements, nevertheless it doesn’t guarantee the funds’ judicious useby beneficiaries or by the members associated with them. The funds justly reaching the rightful recipients has its own challenges considering the level of paucity of financial knowledge and discipline amongst the section of the economy which is at the lower rungs of the economy’s income distribution ladder. This financial freedom may mean status quo for the transferees or may even make them worse of.

JAM (Jan-dhan, mobile and Adhar) has been considered to be the critical pre-requisite of the direct cash transfer scheme. As per the Economic Survey 2016-17, there are 26.5 crore Jan Dhan accounts i.e. 21% of the population the country.

·         About a third of the adults in India are yet to have a bank account which means they are still to take the first step towards financial inclusion.
·         This unbanked lot is largely the one belonging to the poorest social groups i.e. women, backward classes, aged and challenged; the ones reaping the maximum benefits of the state run subsidies. This is also the lot which markedly has the least financial awareness and also are the most exploited ones especially in the rural areas

For the basic income distribution system to be fair for all, a lot of pre -work needs to be done in terms of streamlining the Jan-Dhan accounts:
·         Financial knowledge to the recepients and awareness about the financial upshots of their account.
·         Aadhar linking of their accounts ; about 57% are Aadhar linked currently.
·         Not the least, monitoring corruption at source and in the end.

l Hazard/ Loss of jobs:
Introduction or assessment of such programs should not ignore country specific features. For an emerging nation like ours, the situation of artificial intelligence largely replacing human labour is yet to reach a stand-off. Moreover, are we saying that we never had automation and evolution in our working conditions; technology has never taken over human involvement in our industries? With all this development over the years, we have been able to bring down the poverty levels in India from 50% to approx. 20% (2011-12) without providing any basic income to the poor!

As per the economists and the proponents of basic income scheme in India, we aim to alleviate poverty for the means-tested population of our country. As per the World Bank data, the main source of income is casual labour for the rural poor and casual labour and self -employment for the urban poor. It is still feasible for us as an economy to create ample jobs at least for the unskilled/ low skilled/ semi-skilled labourers if the country starts concentrating on jobs like building of good roads, taking electricity to the nook and corner of villages, open more seaports, expand railways and so on…the list is endless. So for us, technology taking over human labour is still a far cry. Moreover, the money spent on providing basic income can be spent on training the unskilled and scaling them up for better jobs.

As a country with a gamut of challenges along with one of the prominent challenges of fiscal deficit, we cannot find basic income scheme as a solution to support farmers or an alternate to farm loan waiver. There definitely has to be a more structured approach towards dealing with the issue. It is not a wise idea to give away money for free in a country where we can rather work more effectively towards creating new jobs and progress towards economic development. As a democracy, creating newer opportunities sounds like a more populist measure acceptable to all the classes of the economy unlike distributing basic income which sounds more like a short term electoral gimmick.

·       IMF Working Paper: Universal Basic Income in Developing Countries: Issues, Options, and Illustration for India” by David Coady and Delphine Prady, July 2018
·       IMF Working paper: Universal Basic Income: Debate and Impact Assessment: Maura Francese ; Delphine Prady, December 10, 2018
·       Economic Survey of India, 2016-17
·       India in figures-2018, MOSPI

Disclaimer: The views, opinions and content on this blog are solely those of the authors. ISME does not take responsibility of content which are plagiarized or not quoted