The idea of a universal basic income (UBI) is gaining ground globally.
Here is an evaluation of its necessity, target group and possible outcome in India.
Should it necessarily be universal?
Millions of people remain unemployed and are extremely poor, despite rapid economic growth.
A UBI thus requires the government to pay 'every citizen' a fixed amount of money on a regular basis and without any conditionalities.
But it is to be understood that the UBI is neither a remedy to the uncertainty with the market forces nor a substitute for basic public services, especially health and education.
Besides, there is less need for transfer money to middle- and high-income earners as well as large landowners.
With limited fiscal space for direct income support, it will thus have to be restricted to the poorest of poor households.
In this context, there is a strong case for groups such as the landless labourers, agricultural workers and marginal farmers who suffer from multi-dimensional poverty.
Why do these groups need income support?
These are the groups that have not benefited from the economic growth in the past three decades.
They were and still are the poorest Indians, and various welfare schemes have also failed to bring them out of poverty.
One issue is that the access to institutional credit issued by banks and cooperative societies is highly imbalanced.
Institutional credits account for less than 15% of the total borrowing by landless agricultural workers, and 30% for marginal and small farmers.
These groups have to borrow from moneylenders at exorbitant interest rates ranging from 24 to 60%.
As a result, they do not stand to benefit much from the interest rate subsidy for the agriculture sector.
Likewise, the benefits of subsidised fertilizers and power are enjoyed largely by big farmers.
In urban areas, contract workers and those in the informal sector face a similar problem.
The rapid pace of automation of low-skill jobs and formalisation of the retail sector has made the prospects of these groups even weaker.
How will it help them?
Livelihood - An income support of, say, Rs. 15,000 per annum can be a good supplement to their livelihoods.
This additional income can reduce the incidence of indebtedness among marginal farmers and thereby help escape from moneylenders.
Basic income can help bring a large number of households out of the poverty trap or prevent them from falling into it.
Health and education - Several studies have shown that at high levels of impoverishment, even a small income supplement can improve nutrient intake.
It is also likely to increase enrolment and school attendance for students coming from poor households.
Notably, transfer of money into the bank accounts of women of the beneficiary households would have a better result in health and education of children.
In other words, income transfers to the poor will lead to more productive workforce with improved health and educational outcomes.
Employment - The income support suggested above is not too large to discourage people from working.
In fact, it can actually promote employment and economic activities.
E.g. the income can work as interest-free working capital for several categories of beneficiaries like the fruit and vegetable vendors and small artisans
Moreover, an overall boost in spending will increase demand and promote economic activities in rural areas.
With income support and thereby better education and health, basic income might reduce income inequalities.
How are public services still significant?
An income transfer scheme cannot be a substitute for universal basic services.
The income support to the poor will deliver the benefits only if it comes on top of public services such as primary health and education.
This means that direct transfers should not be at the expense of public services for primary health and education.
Budgetary allocation for these services should be raised significantly.
Programmes such as the Mahatma Gandhi Rural Employment Guarantee Scheme should also stay for some time.
How to meet the fiscal requirement?
With rough estimation of the number of eligible households to be 10 crore, the scheme will require approximately Rs. 1.5 lakh crore per annum.
The PM-KISAN Yojana can be aligned to meet a part of the cost.
Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment and so the cost will have to be shared by the States too.
