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Universal Basic Income (UBI)



Of late the concept of Universal Basic Income (UBI) has gained significant traction amongst the economists and policy planners worldwide including some of the developed European nations, India is no exception. Is it an idea whose time has come? Probably not but it certainly deserves a closer look in light of the gap between the haves and have-nots widening and the Ginni coefficients not looking any better.
A Universal Basic Income is a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.
Current social security and poverty alleviation schemes have been observed to have little impact in countries across the development spectrum with benefits not reaching those who require it the most. Developing countries like India provide largely in-kind benefits through the Public Distribution System (PDS). Besides this there are about 900+ central govt welfare schemes being run simultaneously. The former Prime Minister of India – Rajiv Gandhi once famously said – “Out of every rupee of government welfare program only 15 paise reaches the poor” while it could be 15, 20 or 25 paise but the larger issue is quite obvious – there is a leakage to the extent of anything between 75-85%...!!!!
Due to the limited effectiveness and large scale leakages in the existing welfare schemes, economists and others are advocating giving every citizen a fixed, unconditional cash transfer.
The other issue largely seen in the developed countries now and in days to come will also impact the developing economies - the loss of jobs on account of significant advancement in automation. UBI will provide the basic social cover occurring due to the loss of jobs.
The benefits of UBI - it secures at least a basic standard of living, provides the beneficiaries the power of choice - they can spend the money as they deem fit, removes disincentives of unemployment benefits system. The security of a basic income could boost enterprise as self employment becomes a more palatable prospect.
Critics of UBI have legitimate concerns. Even if all the existing welfare programs were consolidated, the total will not be sufficient to meet UBI needs. UBI in all probability would have to be funded by raising taxes.
In India paying a Basic Income equivalent below the poverty line (around Rs.13,400/-) to each and every adult would entail a cost of about 11-12% of the GDP which is more than double of what we do on explicit subsidies (Electricity, LPG, Kerosene, PDS, Sugar)! And this does not include spending on education and healthcare!
Clearly funding this UBI in the true sense does not seem feasible, changes in some of the welfare schemes already operating would have to be made and some broad filters could be applied to exclude those who would not need the support.
Indian policy makers have also evinced a keen interest in exploring this concept. Some pilots were launched in Madhya Pradesh, funded by Unicef and coordinated by the Self-Employed Women’s Association (SEWA), to study the effectiveness of income grants.
The results show that people who received the unconditional cash transfers in the pilot did not use it to increase leisure and reduce work. More importantly, the pilots showed that those who received grants undertook small-scale investments, such as for more and better seeds, equipment repairs, establishment of little shops, etc., which potentially raised long-run productivity.
The second main argument against a universal income is the cost.
However, the pilots show that even much smaller grants, way below the poverty line, might do the trick. The monthly cash payouts in the pilots were Rs300 for each adult, or Rs10 per day, much below the rural poverty line of Rs32 per day.
Despite such a low basic income, the pilot villages did show significant desirable changes. Thus, let us say that India were to adopt a universal unconditional cash transfer program based on the experience of Madhya Pradesh. Accounting for inflation, if the monthly payments were  Rs400 for each adult in rural areas and consequently Rs587 for each adult in urban areas.
Given present nominal GDP and population, the total cost of such transfers should come to around 4-4.3% of GDP, which is almost equal to the amount that the government spends on explicit subsidies.
With some minor changes and suitable exclusion filters UBI as a concept could be worth checking out on a larger scale given the inadequacy of the various welfare programs and the increase in un-employment due to the rapid automation as we move towards a digital age.
Countries like Finland, Switzerland, Norway, Spain are some countries actively considering UBI.
Sanjiva Jha
CEO - BroadArks Technology

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