Prof. V.P. Gupta,Director, Rau’s IAS Study Circle, New Delhi – Jaipur – Bengaluru
This article caters to the Polity and Governance portion, Social Welfare, Economic Welfare of General Studies-Paper II & III and for Essay Paper in UPSC Main Examination.
A referendum was carried out in Switzerland in 2016 wherein the people were asked to give their opinion on the implementation of Universal Basic Income (UBI). The proposal included the UBI of 2,500 Swiss francs to be provided to all the adults living in Switzerland. The result of the referendum was quite surprising given the fact that more than 75% of the population rejected the idea of UBI.
However, in spite of its rejection, the idea of UBI has caught the imagination of the world. A large number of countries such as the US, Canada, Kenya, Finland, Namibia, the Netherlands, India etc. are implementing UBI through a pilot program in order to study its impact on the society. The UBI is being considered as a magic bullet to solve the various socio-economic challenges confronting the global community. It has found its proponents in both developed and developing countries. More importantly, even though the ideologies of Capitalism and Socialism are poles apart and do not reach on common ground on number of issues. However, both capitalists and socialists seem to have reached a consensus on the implementation of UBI.
However, UBI has its advocates as well as opponents. On one hand, the advocates have pitched for UBI as an answer to solve the problems of poverty and unemployment while, on the other hand, the opponents have argued that UBI would not be economically feasible and impose additional social costs in the form of inducing laziness and increased demand for temptation goods such as alcohol, cigarettes etc.
Against this backdrop, questions which can be raised here are : Whether India is ready for UBI? Can UBI emerge as a tool to promote faster and inclusive growth and bridge the regional and gender disparity? More importantly, in spite of its desirability, does India has the necessary financial capability and resources to implement UBI?
Let us find the answers to these questions
A Universal Basic Income is a regular fixed cash transfer payment provided by the government to every citizen or resident regardless of their socio-economic status to ensure that they are at least able to meet their basic needs. The idea of a basic income is founded on the three following characteristics:
Universality: UBI should be given to the entire population without taking into account the socio-economic status.
Un-conditionality: UBI should be un-conditional i.e. UBI should be given without any conditionality.
Agency: UBI should be in the form of cash transfers without dictating the choices i.e. the recipients should have complete freedom to use the UBI in whatever way they deem fit.
The Genesis of UBI: The idea of UBI is an old idea in western countries. It has been associated with a large number of scholars such as Thomas Paine, J.S. Mill, Thomas More etc. For example, Thomas More proposed providing all the people with a basic means of livelihood in order to control social evils such as thefts and burglary. Further, post the World War-II, the UBI received support from economists such as Milton Friedman and Keynes.
However, the idea of UBI has gained renaissance in the recent times due to the concerns that growing automation may render people jobless and hence would need support from the government. Further, as the concept of modern welfare state is expanding, it is expected that the state ought to fulfil the basic needs of its citizens.
UBI—neither right nor left but it’s forward
At last, Karl Marx and Adam smith have something to agree upon since UBI has found support from both capitalists as well as socialists. The Capitalists argue that growing automation would lead to loss of jobs and hence can have an adverse impact on the demand in the economy. Under such circumstances, the UBI would enable the economies to keep the demand intact and consequently the future economic growth would not be jeopardised.
Further, the capitalists argue that UBI would not induce laziness among people. It is based upon the assumption that all the individuals are utility maximisers and would strive for higher quality of life once they are assured of basic needs through the UBI.
On the other hand, the socialists argue that the implementation of UBI would reduce the growing socio-economic disparities across the world and would go a long way in taking forward the idea of modern welfare state.
Thus, it is argued that UBI is neither right (Capitalist) nor left (Socialist), rather it should be way forward for all the countries.
UBI Pilot Programmes across the world: A number of countries such as Namibia (Basic Income Grant), Canada (MINCOME), Kenya (Give Directly), USA (YCombinator), Finland, the Netherlands etc. have launched pilot programs for the UBI on an experimental scale. Even India has carried out pilot study of UBI in state of Madhya Pradesh known as Madhya Pradesh unconditional cash transfers project (MPUCT). This clearly highlights that there has been growing enthusiasm among the global community for the implementation of UBI.
Advantages of UBI in India
Freedom and Justice: It is often said that the greatness of a nation can be judged by how it treats its weakest member. In this regard, the UBI would enable the government to realise its vision of social and economic justice as enshrined in the Preamble of the Indian Constitution.
It is to be noted that Article 21 of the Indian Constitution includes the Right to Life. The Right to Life is not confined to mere animal existence and it means more than physical survival. It includes the right to live with human dignity by being able to meet the basic necessities such as food, clothing, shelter, education, healthcare etc. Thus, the state is required to play a facilitative role in ensuring human dignity and enabling the individuals to reach their optimum potential. Hence, the implementation of UBI would promote the basic values such as freedom, justice, equality, fairness in a country.
Apart from that, Nobel laureate Amartya Sen has shown a clear link between poverty and basic human rights. He believes that poverty is result of deprivation of basic human rights leading to the state of “Unfreedom”. Lack of access to basic human rights leads to poverty and makes the people incapable of taking economic decisions. Thus, the UBI would give the people the most important freedom i.e. deciding for themselves what they want to do with their life. Hence, UBI would go a long way in ensuring freedom and economic and social justice for the people.
Poverty Reduction: The Government has launched a large number of schemes and programmes aimed at poverty eradication. However, it has not had intended benefits. In this regard, the UBI can be considered to be a much better tool for poverty eradication for number of reasons.
Firstly, if we look at the BPL population in India, it has got reduced from almost 70% in 1950s to 22% in 2011-12. However, in spite of this huge achievement, a large section of Indian society is even today unable to meet their basic needs. This is because the poverty line estimates in India take into account only the ability of the people to meet their basic food needs and not other basic needs such as education, healthcare, transportation etc. This clearly highlights that we still have a long way to go in order to “wipe out every tear from every eye”.
Secondly, the BPL list in India is characterised by inclusion and exclusion errors due to which we have been unable to ensure basic needs for the poorest and most vulnerable sections of the society. Unless we are able to clearly identify the poorest sections in our society, poverty eradication would always remain a distant dream. In this regard, since the UBI is designed to be universal, it would be most appropriate tool to ensure basic rights of the poor and the downtrodden.
Thirdly, reasons for the poverty in India vary across the families. In some families, lack of basic education could be reason for poverty whereas in other families, lack of employment opportunities or poor health conditions could be reasons. Due to which, “One size fits all approach” to eradicate poverty does not work. Hence, it is the family and not the government that is in the best position to decide as to what actions should be taken in order to come out of the vicious cycle of poverty. The UBI would empower the families to take this important decision and hence can be considered to be a much better tool for poverty eradication.
Reducing Income Inequality: The UBI could also be considered as a solution to address the growing inequality in India for number of reasons.
Firstly, according to a recent study conducted by the World Bank, almost 1/3rd of jobs in developing countries could face immense pressure due to growing technological advancements and automation. Hence, the UBI would provide the people with the necessary security net in order to withstand any potential job losses in future.
Secondly, the UBI would be financed through the progressive income tax leading to redistribution of income from the richer class to the poor people.
Thirdly, provision of income security through the UBI would have positive spill over effects such as increased levels of entrepreneurship among the poor families. This would promote inclusive growth and reduce the gap in the income levels between the households.
Promote Women Empowerment: Even though, women contribute significantly for the growth of our economy, their contribution is hardly recognised since majority of the women are involved in “unpaid” household work. Hence, in this regard, the feminists argue that the implementation of UBI would lead to change in the outlook of the society towards women and promote gender equality. This becomes extremely important in India where the women are regarded as burden on the families leading to their low social status.
UBI and Mental Health: Normally, the poor people across the world are burdened with the “psychology of scarcity” characterised by anxiety, distress and depression leading to poor mental health condition. This significantly affects their decision making ability and hence they fall into the vicious cycle of poverty and poor mental health condition.
The UBI could, therefore, help people free themselves of the mental burden and preoccupations and move towards a healthier life. It could allow them to find time for other activities which lead to their personal satisfaction and improve emotional well-being.
Thus, in the long term, UBI would lead to improved decision making, better mental health and emotional well-being, and means of breaking out of poverty cycle.
Problems with the Universal Basic Income
The motivation behind most Universal Basic Income is laudable. However, some of the economists have argued that the UBI may not have intended benefits on the economy. They argue that in reality, the UBI would likely fall far short of eliminating poverty while imposing large economic and social costs. It was on account of these reasons, the Swiss electorate had rejected the UBI by a overwhelming majority.
In this regard, let us understand some of the problems and challenges in implementation of UBI in India.
Economic cost of UBI: Many opponents of the UBI argue that providing an income transfer to the entire population would result in very high expenditure. For example, if India has to provide UBI to all its citizens, it would be required to pay Rs. 1190 per person per month (This is based on the Poverty line estimates of 2011-12 according to Tendulkar Committee estimates). This expenditure would amount to around 12.5% of its GDP. So, the question here is even though UBI is desirable, where is the fiscal space for India to implement it, particularly when its tax-GDP ratio is abysmally low.
Thus, in view of high economic cost of UBI, it can be argued that the UBI is a kind of luxury, which only the developed economies can think of. For poor and developing countries, the UBI would always remain a lofted ideal which would be difficult to achieve.
Social Cost of UBI: Work plays a central role in the life of the people. Apart from enabling them to earn their livelihood, working has certain social benefits. It contributes to feelings of self-worth and personal satisfaction, facilitates social interaction and enables the people to fulfil social needs and establish their role and identity in the society. In this regard, some economists have opposed UBI on the grounds that it would disincentive work and lead to negative social cost on the society.
Apart from that, modern societies are necessarily based upon the principle of reciprocity i.e. the people’s rights must be commensurate with their duties and obligations. The UBI would violate this principle of reciprocity since people would receive the money as matter of right without imposing any economic or social obligation on them.
Political Cost of UBI: In order to implement UBI, the government would be required to do away with all the subsidies, which presently account for around 4.24% of the GDP. However, doing away with the subsidies has always been Achilles heels for India since it imposes political cost in the form of loss of vote bank.
Hence, normally, the governments are reluctant to do away with the subsidies. Under such circumstances, if the government implements UBI as an add-on benefit along with the subsidies, it would unnecessarily complicate the welfare economics in India.
Further, it has to be noted that the UBI may have to be revised periodically taking into account the rate of inflation and standard of living. Hence, competitive and vote bank politics may play a major role in the revision of UBI leading to unnecessary increase in the UBI amount. This would have an adverse impact on the economy in the long term.
Certain questions about UBI
Does UBI discourage work and make people lazy? It has been argued that UBI would discourage work and make people lazy since they are assured of minimum income for meeting their basic needs. On the other hand, this criticism against the UBI has been countered by some of the economists on number of grounds.
Firstly, the amount of money to be given under the UBI is meant to cover only the basic needs of the people. This means that the UBI cannot be considered to be sole means of survival for the large chunk of India’s population. People would still have to work in order to meet their higher order needs. This can be explained through Maslow’s Theory of Motivation.
Maslow believed that the people’s motivation to work arises from their inherent need to meet their multiple needs i.e. people work in order to meet their needs. Now, these multiple needs of the people can be arranged in form of hierarchy wherein the lower order needs include physiological needs and safety needs while the higher order needs include social needs, esteem needs and self-actualisation needs.
The UBI would enable the people to meet only their lower order needs. Hence, the people would still need to work in order to meet their higher order needs. Thus, it would be naive and fallacious to argue that the implementation of UBI would discourage work and affect the labour market.
Secondly, the argument that UBI would discourage work is based upon erroneous assumption that people work only in order to meet their basic needs. Hence, it is argued that people would stop working once their basic needs are met through UBI. However, such an assumption demeans human dignity and labour and portrays the human beings in negative manner. As discussed before, human beings may like to work in order to have personal satisfaction and develop a feeling of self-worth. Further, it also enables them to meet their social needs of being loved, respected and cared for by the society.
Thirdly, it can also be argued that the UBI would lead to increase in the productivity level of the workers. UBI would enable the workers to increase their bargaining power and negotiate on better terms of employment such as increased wages, better working conditions, access to social security benefits such as pension, insurance etc. Further, assurance of UBI would enable the workers to spend the money on development of their skills leading to increase in their productivity.
Hence, it can be argued that, contrary to the claims that UBI would discourage work, implementation of it would actually improve the status of the workers, improve their bargaining power and more importantly, lead to higher productivity.
Does UBI lead to increase in demand for Temptation Goods? It has been argued that the implementation of the UBI would lead to increase in the demand for temptation goods such as alcohol, tobacco, gambling etc. leading to moral hazard. However, this criticism against UBI may be countered on number of grounds.
Firstly, it is to be noted that both alcohol and tobacco are inferior goods and not normal goods i.e. their demand reduces as the income level of the people increases due to the substitution effect (Law of Demand).
Hence, it is expected that as the income levels of the people increases through the implementation of UBI, the people would spend less money on the temptation goods and instead substitute this wasteful expenditure with some productive expenditure such as education, healthcare etc.
Secondly, the assumption that the UBI would lead to increase in the temptation goods goes against the empirical evidence. It was observed in various pilot programmes across the world that UBI did not lead to increase in the temptation goods among the communities. For example, doing the pilot study carried out in Madhya Pradesh, it was found out that the tribal communities used the money obtained under the UBI for productive purposes rather than using it for the temptation goods.
Thirdly, there is also evidence that as the poor people are provided with UBI, they are willing to start small businesses and pull themselves out of poverty trap. Further, an assessment of NSS 2011-12 data, revealed that temptation goods are a small component of overall household budget and as overall consumption increases, the consumption of temptation goods does not increase commensurately.
Thus, based upon these aspects, some of the economists have argued that the criticisms against UBI are unfounded and detached from reality. Empirical evidence and strong counter arguments can be presented to dispel these criticisms against UBI.
Implementing UBI in India
UBI has entered policy debate in India ever since UBI was proposed by the Economic Survey 2016-17 as a social welfare scheme suitable for India. Further, recently, the Sikkim government has declared that it would be implementing the UBI from 2022. These developments point out that the debate on the UBI has already been ignited in India. But the question here is does India has sufficient financial resources to implement UBI? From where should we generate revenue to fund it? The Economic Survey has given answers to these questions.
The Economic Survey proposes that the UBI should target only 75% of the population rather than being universal. It is of the opinion that the top 25% of the India’s population can be easily excluded from the purview of UBI through automatic exclusion criteria such as payment of Income Tax, ownership of movable and immovable property etc. Hence, in order to provide the UBI for 75% of the population in India, we would be required to spend around 5-6% of the GDP in order to implement it.
The Economic Survey has proposed that the UBI can be implemented by doing away all the subsidies presently given by the government. For example, presently, the government spends around 2% of the GDP on various subsidies such as fertilisers, petroleum, food etc. Apart from that, there are large number of subsidies that are mainly benefitting the middle class such as subsidies on railways, aviation fuel, electricity etc. and hence doing away with such subsidies would release an additional amount of 1% of the GDP.
Further, the Budget for 2016-17 indicates that there are about 950 Central sector and centrally sponsored sub-schemes in India accounting for about 5% of the GDP. Most of the central sector schemes are on-going for at least 15 years and 50 percent of them were over 25 years old. Hence, we can achieve considerable gains by replacing many of these ineffective and out-dated schemes with a UBI.
Thus, this clearly highlights that India may be in a position to implement UBI if it is able to do way with the subsidies and inefficient schemes and programmes. However, financial resources alone would not guarantee the success of UBI in India. There are host of other factors which should have to be considered.
Firstly, it is observed that the success of the UBI initiative would depend upon the political will and administrative efficiency. If the UBI is implemented without the support of all the stakeholders, it is doomed to fail. Hence, in order to implement UBI, we need to adopt participatory and more inclusive approach by consulting all the stakeholders. Such an approach would build the necessary trust and confidence among the stakeholders for the implementation of UBI.
Secondly, there is a need to recognise that the success of the UBI would depend upon providing information and enhancing the awareness levels of the people in India. The UBI should have to be implemented along with a sustained media campaign that should be targeted to bring about attitudinal and behavioural change among the people.
Thirdly, lack of Financial Inclusion may create a significant impediment for UBI implementation. According to the World Bank, there are only around 20 ATMs for every 100,000 adults in India. Hence, under the circumstances, it may become quite difficult for the people living in remote areas to access the UBI. Hence, there is need to make the optimum use of JAM (Jan Dhan, Aadhaar and Mobile) trinity solution for making cash transfers. Apart from that, we need to improve the last-mile connectivity before implementing UBI. In this regard, there is a need to give further boost to differentiated banks such as Payment Banks and Small Finance Banks along with enhancing the presence of Banking Correspondents (BCs) in the rural areas.
Fourthly, being a large and diverse country, India has to implement the UBI in an incremental and phased manner. Such an approach would enable us to keep learning from the challenges and problems which would be encountered in the implementation of the UBI. Such an approach provides scope for mid-course correction and would lead to development of fail-proof and error-free UBI programme in the long term.
Lastly, the government has to realise that the implementation of UBI is just one facet of welfare state and its implementation should not deter the government from undertaking other welfare measures. The Government needs to continue to invest in the creation of welfare state such as provision of Education, Healthcare, Housing, Sanitation etc. Provision of such basic infrastructure is equally critical for the success of the UBI.
It can be construed that the option of UBI has been floated as a panacea to promote welfare but it should be accompanied with more focus and weightage towards education, generating awareness, skilling, creativity, productivity, employability, employment and health of the people. Major budgetary investment is desired in all these areas which make people capable rather than dependent, make them citizens rather than subjects. “Lending hands to someone is better than giving a dole.”