Universal Basic Income : Can it solve India’s problem?

By BYJU'S Exam Prep

Updated on: September 13th, 2023

Universal Basic Income

Universal Basic Income is a regular, periodic cash payment delivered unconditionally to all citizens on an individual basis without any requirement of work or willingness to work. This idea first gained prominence in the West with countries like Finland, UK & Canada are having trials on same.

Characteristics of UBI

  •  Unconditional — Everyone of same age would receive the same Basic Income irrespective of gender, social status, contribution to society etc.
  •  Automatic — Directly in bank a/c on weekly or monthly basic.
  •  Non-withdrawable — Whether someone’s earning increase or decrease or stay the same, the basic income will not change.
  •  Individual — Would be paid on an individual basis
  •  As a right — Everybody legally resident would receive a basic income.
  •  Payment in cash — Not food vouchers or service coupon like in PDS.

Indian Scenario

Amid persistent farm distress & weak wage growth, the idea of income support scheme seems to be gaining ground. In the Economic Survey 2017-18, a separate chapter was devoted to UBI.

Recently Sikkim became the first state in India to announce that it would provide UBI to its residents form 2022 onwards.

Schemes like Rythu Bandhu Scheme of Telangana govt and KALIA of Odisha govt have also assured a fixed amount to be given to the farmers.


Points in favour of UBI

  • Persistent poor allocation, leakages and corruption in govt schemes provide resonance to the idea of UBI
  • Unlike farm waiver, UBI does not impair credit culture and unlike farmer specific transfers, does not seek to tie down people to farming.
  • Failure to tackle poverty & unemployment has added more force to pro- UBI arguments.
  • The country is ready with Jan Dhan, Aadhar & mobile system or JAM trinity for direct benefit transfer & income transfer trials.
  • Chronic agrarian crisis and falling rural income which might exacerbate with changing global climatic condition, is also pushing this idea forward.
  • Trial projects which were run in West Delhi slums and a rural locality of MP, has shown +ve impacts.
  • Further UBI can be used by individuals to reduce debt, accumulate savings, may induce entrepreneurial efforts. Basic Income will also increase resilience to economic shocks by enabling collective responses to individual hazards.
  • Contrary to Indian PDS, a basic income does not limit the choice of recipient to a set of subsidized goods. Moreover, IPDS entails a higher cost associated with the distribution.
  • UBI would help Indian women to gain greater financial independence & thus enhance gender equality.
  • Incorporating UBI through direct transfers would bring more people into the formal banking system.

Arguments against

  • One of the concerns against UBI is a worry for conspicuous spending on drugs, gambling or alcohol.
  • Another concern is a reduction of labour supply as there is a fear that an insured income would lead people to drop work.
  • Methods for determining who would and would not qualify are costly and time-consuming (open to corruption and system leaks) and has the risk of leaving out many.
  • Providing all individuals a UBI above the conventional and certified poverty line (Rs 1180 per month ) would cost around rupees 19 trillion or 11.5% of GDP. This would be 50% more than the centre’s total tax revenue and would certainly not be sustainable.
  • Reluctance for UBI also comes from fiscal cost and challenges.
  • As transfers are unconditional, it is extremely difficult to ensure that additional income will be spent on health, education and other human development needs.
  • UBI does not really tackle the economy’s structural problems that keep people poor or generate vast inequalities.

Way forward

Instead of UBI, one alternative idea can be, to target certain populations instead of giving an income to entire populations. For example – Economic Survey of 2016-17 suggested a Quasi-Universal Basic Rural Income (QUBRI) to tackle agrarian distress. It suggested transfers of about Rs 18000 annually per household to cover 75% of rural population at a total fiscal cost of about Rs 2.64 lakh crores or about 1.3% of GDP, except the “demonstrably well off”. This amount can be feasible by merging some existing schemes like MGNREGA which is being dubbed as a living monument of UPA’s failure. Budget 2019-20’s PMKSN (Pradhan Mantri Kishan Samman Nidhi ) scheme which assures a supplemental income of Rs 6000 per year to farmer with less than 5 acre of land, can be said a component of targeted UBI. The other way can be a UBI scheme with an ” opt out” system, in which wealthiest 25 or 50% of population can be given the option of withdrawing from UBI. There can also be a consideration on UBI for women as women are worse of in employment opportunities, educational and financial inclusion.

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