Universal Basic Income and Its Application in India

Even though the basic income programme presents many opportunities for India’s welfare-structure, it will require much patience and deliberation before being put into practice.

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The concept of a Universal Basic Income (UBI) has become an important part of policymakers’ lexicon in recent years. Essentially, UBI is a large-scale—typically universal—safety-net programme that provides a periodic and unconditional cash transfer to all citizens. It has found support across party-lines in both developed and developing nations amid the growing fear of increasing automation, falling rate of job creation and rising inequality.

In India too, the idea has attracted significant attention. While on the one hand, Congress’ Rahul Gandhi proposed a minimum income guarantee as part of his 2019 election manifesto; on the other, former Chief Economic Advisor of the NDA Government, Arvind Subramanian explored the feasibility of an Indian UBI programme in the 2016–17 Economic Survey (ES). Although ES concluded that conditions were not yet favourable for a successful implementation, the survey’s proposed UBI model provides a good reference point for further investigation.

Benefits and Risks

According to the survey, UBI payments are unconditional, where every citizen receives money periodically and is free to spend the amount as they wish. This provision raises concerns about beneficiaries dropping out of the labour force, becoming ‘dependant’ on transfers and spending on ‘wasteful goods’. However, evidence from schemes resembling proposed UBI model reveals otherwise. There are only two schemes which can claim to be a UBI in a developing country like India—one in two villages in Namibia, and the other in Iran’s nation-wide cash transfer introduced in 2011 to offset the withdrawal of food and fuel subsidies. Among all of the examples of basic income proposals, the most extensive investigation of a real UBI test case is occurring in Kenya, where NGO GiveDirectly is conducting a privately funded randomized control trial comparing a variety of unconditional cash transfers that will be provided over a period of 12years. As the world’s first comprehensive test of a UBI, this study may help answer core questions about the basic income as its initial findings are released later this year.

First, it was found that beneficiaries tend to spend lesser on ‘wasteful goods’ such as tobacco and alcohol when given a basic income (BI). Second, contrary to popular belief, such transfers do not discourage work or increase ‘dependency’.

The poor and UBI

 In fact, evidence shows that cash-transfer programmes like Brazil’s Bolsa Familia and Mexico’s Opportunidades and experiments with a UBI-like scheme in Canada are more effective than in-kind transfers in enhancing social justice and equitable development. Likewise, pilot studies from Madhya Pradesh and Delhi reveal that BI has a positive impact on many aspects of beneficiaries’ lives such as education, healthcare, labour force participation, etc.

Next, the ES suggests utilizing JAM (Jan DhanAadhaar-Mobile) infrastructure for transfers, to enhance efficiency and transparency of India’s welfare system, which is ‘riddled with misallocation, leakages and wrongful exclusion of the poor’. For example, 36 percent of total Public Distribution System (PDS) allocation never reaches final beneficiaries because of ‘leakages’. Moreover, despite its expansive outreach, significant under-coverage of lower income groups exists under Targeted-PDS; such discrepancies can be corrected through the allocation of a unique identification number and direct cash transfers into beneficiaries’ accounts.

Further, the survey recommends replacing all major social protection and welfare schemes with a UBI programme to reduce administrative burden, corruption and wrongful exclusion of the deserving-poor. A UBI would enhance the inclusion of lower income groups, since by design it would cover all households. However, improved coverage under the UBI would still come at the expense of those at the bottom deciles, due to sharing—rather, leakages—of benefits with included top income groups (the undeserving-rich people). To circumvent such leakages, the survey outlines a ‘quasi-universal’ basic income programme, which aims to cover 75 per cent of all households and leave out the richest quartile of Indians determined as per Tendulkar line. However, Tendulkar’s methodology of poverty measurement is problematic for being too conservative which could preclude an accurate assessment of the intensity and magnitude of poverty and required efforts to alleviate it.

Also Read : Can Universal Basic Income Eliminate Poverty

Factors for Consideration

Although benefits accrued by preventing leakages and reducing administrative inefficiencies could create a more generous UBI for beneficiaries, certain factors require further scrutiny, as discussed further:

 Fiscal Capacity

Different versions (see pp. 18–19 of the link) of a UBI with varying basic income amounts and financing mechanisms have been proposed by economists. In any case, even with a conservative poverty measure, the impact of a UBI or quasi-UBI on national GDP would be quite substantial (between 4.5%–13% depending on the transfer amount). To ensure that the programme is financially sustainable, some economists propose dismantling key welfare schemes including PDS and Mahatma Gandhi National Rural Employment Guarantee Scheme to create fiscal space; while others suggest a combination of increased taxation (through ‘negative income tax’ or ‘proportional tax scheme’) and roll-back of ‘non-merit subsidies’ on items such as fuel, fertiliser and electricity. These suggestions present a host of options which will allow the government to raise resources for a UBI programme. Nonetheless, the decision to implement a UBI will depend not only on the financial feasibility of the approach but also on the political repercussions of the methods adopted.

 Technological Capacity

The reliance on JAM is not yet viable since technological failure, omission of genuine beneficiaries, and authentication failures have been documented across several states, where Aadhaar-based authentication is involved in the distribution of in-kind benefits and social security pensions.

Also Read : Few Intangibles Behind The Economic Slowdown

Much progress needs to be made before large-scale Aadhaar-linked transfers can be trusted to reach the right recipients. 

Policy Trade-offs

Although current welfare programmes are fraught with leakages, corruption and inefficiency, there might be benefits in trying to improve current schemes rather than introducing new ones as they could be as vulnerable to existing systemic problems. Further, even as there is evidence to show that cash transfers are superior to in-kind assistance, the development economist Jean Drèze warns, the UBI must not be viewed as a replacement to welfare schemes relating to nutrition, health, education and employment, which are ‘hard-won entitlements of the underprivileged’ but rather must act as a complement to other development-schemes.

The ES, in its calculations based on the Tendulkar line, estimates that providing a quasi-UBI would cause a reduction in national poverty from 22 per cent to 0.5 per cent. While the exact numbers will vary depending on the methodology, the effective utilization of JAM is expected to enhance financial inclusion as well as the targeting and coverage of genuine-beneficiaries. There is, however, a discernible need for stronger evidence that links a state-sponsored UBI with improved development outcomes, since existing trials are either small-scale or privately funded and do not face financial and administrative obstacles asa government-initiated UBI would. Finally, a pragmatic approach to determine the policy structure, financing and intervention mechanism of a UBI should seek to address gaps in current schemes, before seeking to replace them altogether. We can expect a more focussed discussion about UBI in the coming years, especially in developing countries like ours, which are striving to enhance last-mile delivery of services and the efficiency of existing welfare-schemes.