Can India Afford Universal Basic Income?

Universal Basic Income has been a buzzword the world over for some time now. India, world’s largest democracy, floated the idea of a Universal Basic Income for all its citizens on October 2, 2016, that too, regardless of their employment status. 

It was a big surprise for a country whose close to 30% population lives below the poverty line, where basic health services and education are still to be strengthened, triggering curiosity and  doubts over how and whether the provisions of its funding it prepared to bear the additional burden? 

The reasons are many. 

Currently, the earnings of the government through taxation and other revenue sources are used to fund the services of the government and its other welfare schemes. A Universal Income may relieve the government from service delivery, providing people with the money only to access those services. It may ensure the economic liberty of the individuals while ensuring equitable distribution of wealth. 

Above all, it would be relatively easy to implement Universal Basic Income. Earlier, the targeted welfare schemes needed extensive ground work to identify disabilities and the beneficiaries thereof. Even more tedious was the task of auditing and ensuring there was no leakage of funds allocated for such schemes.

An across-the-board provision of Universal Basic Income could help counter the scope of corruption that was rampant in the implementation of such welfare schemes and could ensure the efficient use of government revenue. The argument that Arvind Subramanian, Chief Economic Advisor gave to press his point to mark Gandhi Jayanti last year was that there were at least 1000 schemes being run by the Central Government for the poor and it was not clear whether the money actually reached the poor or not, so UBI can be a more effective way of reaching them. In the past, the government had focused on poor by virtue of accident of their birth – the ‘dalits', ‘adivasis’ etc. 

But now, the accident of birth was less important than the accident of life. Situations such as drought, declining opportunities in agriculture, disease and so on...become the cause of poverty. Consequently, the safety net provided by the government should be quite wide.

And, it does make some sense for a country like India. But finances? Even if we ignore the word Universal and take into account the 37.5 crore living below the poverty line at Rs.32 a day, it would entail a cost of Rs.4.32 lakh. Economists like Amartya Sen have been advocating larger public sector spending on services such as health and education in the light of the country’s abysmal position on the Human Development Index. But given the thought and the functioning of the present government it does not appear to be something outside the bounds of the country.

Various countries of the world have been mulling over the idea of a guaranteed minimum income but, as of now, not many countries have been serious in its implementation, only wealthy, small and homogeneous countries like Switzerland and Finland are seriously considering GMI (Guaranteed Minimum Income)or GBI (Guaranteed Basic Income).

In the USA, there are chances of this Guaranteed Minimum Income (GMI) being derided, as welfare recipients are generally disrespected in their country, and why not? Advocates fail to acknowledge the fact that work is not just a source of income, it is how one finds meaning in life, it is the primary source of social contact, giving human beings a sense of being valuable to the society.

As the debate over Universal Basic Income as a means to address income inequality gets hotter universally with decidedly mixed reactions coming to the fore, we should not lose sight of the various prospects and constraints of this idea turning into a reality. 

To begin with prospects, the scheme is very easy with the help of bank account transfers and, thus, administratively efficient. A UBI of Rs. 4200 per person annually will significantly reduce poverty, un-banked people would be included into the banking sector leading to their financial inclusion, since women below poverty line suffer more, they would be empowered with a regular basic income and, improvement in their socioeconomic indicators like health, literacy and education would bring commensurate psychological benefits. 

And now the constraints. The cost of UBI will be higher than the 5.2% of the GDP being spent on all centrally sponsored schemes and will increase annually due to inflation, adding additional burden on the tax payer. People may not be motivated to work increasing the possibility of reduction in voluntary labour. Though there has been an increase in coverage through Jan Dhan Yojna and post office bank, rural areas might not be able to service the increase in demand. There are chances of this income going into the purchase of temptation goods like cigarettes and alcohol instead of nutritious food. And, last of all, but not the least, the scheme can be abused by the politicians as we have seen cash for votes, but at the cost of the exchequer, it will lead to the destruction of the economy.

However, thinking of it in a huge country like India is, indeed, a bold gesture deserving accolades for the strength of our policy makers in meeting futuristic challenges.