For many years, the concept of Universal Basic Income (UBI) was considered a policy utopia. Even welfare economists like Amartya Sen showed skepticism about the feasibility of UBI, especially for developing countries. But in recent years, it has grown less absurd, and numerous small basic income systems have come up around the world. Therefore, it is an apt time to examine the feasibility of UBI and whether it is a good policy in India.
What is UBI?
The aim of Universal Basic Income is to tackle growing inequality by fostering a more just and income-equitable society. According to the UBI policy, every individual who meets a particular criterion will receive a basic income, which is the bare minimum one requires for leading a dignified life. In their seminal book, "Basic Income: A Radical Proposal for a Free Society and a Sane Economy," Philippe Van Parijs and Yannick Vanderborght make the case that increased globalization has resulted in higher unemployment and more unequal societies. As a result, there is growing interest in UBI as a potential policy alternative to address these issues. However, there is no consensus among economists yet.
A conventional economist would analyze the GDP per capita figures and conclude that the Indian economy, as a whole, is expanding quickly and that there is no need for a policy like UBI. However, GDP figures not accompanied by these data don't paint a true picture. In reality, only a small number of people are becoming richer, thus obscuring rising unemployment and poverty in growth statistics. Projecting the figures one wants and ignoring important details is convenient for public policymakers and government representatives. But it's difficult to ignore the unemployment and inequality statistics any longer to ensure sustainable growth. Hence, political parties in India seem to be always interested in implementing radical social welfare policies like basic income to address inequality.
Is UBI a good policy measure?
However, a difficult question to answer is whether or not this policy move will help us accomplish our goal of a more equitable income distribution. Let us consider the case of MNREGA- a policy through which the poor receive payment for their manual work. While it does help to end extreme poverty, it brings up two crucial issues. One is the issue of distribution leaks and corruption in policy execution. Second, it contributes to the problem of long-term welfare claims. The benefits frequently go to the select few who are already wealthy rather than the majority of the population for whom they were intended.
UBI, being an unconditional direct transfer scheme, tackles the above-mentioned concerns efficiently. To gain benefits under the existing anti-poverty programs in India, you must have a Below Poverty Line (BPL) card. According to the IHDS survey, only around one-third of non-poor people and about 50% of the poor hold a BPL card. An unconditional payout, such as the basic income, would eliminate this inefficiency by removing the need for the program altogether.
Testing its Economic Sustainability
Given the significant funding requirement of the policy, its financing is the main contention by economists, raising the question: is it financially viable? The majority of basic income experiments to date have taken place in industrialized nations, including the US, Britain, Denmark, Germany, and France. And the exchequer bears an intolerable financial burden. For instance, it is anticipated that a yearly payout of 10,000 dollars to every adult in the United States—less than the country's individual poverty level of 13,064 dollars—would use up practically all of the tax income gathered by the federal government. Thus, it is almost impossible to offer a basic income that will result in genuine welfare gains without using up tax revenue at a poverty line as high as 13,064 dollars.
Pranab Bardhan, one of the most vocal supporters of UBI in India, compares the US's scenario with India and claims that because of the larger inequality and poverty levels present here, basic income is a more viable program. For a sizable portion of the population in India, even a small gain in wealth can result in a significant improvement in satisfaction and living conditions. Elaborating on this, he claims that if an annual sum of Rs. 10,000, or around 34% of the poverty level, were unconditionally given to every Indian citizen, the overall amount would equal 10% of the GDP. More money than this is lost each year in the form of implicit or explicit subsidies. By withdrawing some of these subsidies, the money could be easily recouped.
The article's argument does not assert that basic income is a cure-all for all of our problems with poverty. It makes no claims about how a basic income would inevitably lead to more jobs or a more just society. It is only to highlight some of the policy's noteworthy advantages over other efforts to reduce poverty and to satisfy some of the major reservations economists have about it.
(Written by Raghav Bansal and Edited by Prakhar Singhania)