Universal Basic Income (UBI)

Why in news?

Universal Basic Income (UBI) can strengthen welfare architecture and unlock the nation’s latent demographic potential.

What is Universal Basic Income (UBI)?

• UBI - It is an income support mechanism typically intended to reach all or a very large portion of the population regardless of their earnings or employment status.
• Objective- To provide enough to cover the basic cost of living and provide financial security.
• Principles – The fundamental principles of UBI include
  • Universal
  • Unconditional
  • Periodic
  • Cash payment
  • Individual​​​​​​

A universal basic income provides a monthly stipend that would ensure that a person would be above the poverty line without any other source of income.

A minimum income guarantee, on the other hand, is at the discretion of the government of the day - it can be equal, more or less than the poverty line expenditure.

What is the significance of UBI?

• Resource manangement- Universality and unconditionality would mean that the government does not need to spend time and resources in assessing eligibility of the potential beneficiaries.
• Poverty reduction- It would bring everyone’s income above the poverty line, giving people enough money for their basic needs and necessities.
• Basic income pilot in Hyderabad, WorkFREE, has seen increased health insurance coverage among participants.
• Fights unemployment- It would act as act as security net for the millions of people who will be left jobless by the tech revolution.
• It can be used to promote self-employment among the citizens and increase the employment opportunities in the economy.
• Promote entrepreneurship- It would cover the risks involved in starting new business and foster the entrepreneurial ideas in the country.
• Social empowerment- It guarantees an income for non-working parents and caregivers, thus empowering important unpaid roles, especially for women.
• Impetus to social capital- Basic income programmes from around the world show evidence of people being able to invest in better housing, healthcare, education, savings etc.,
  • SEWA pilot project in Maharashtra revealed that the cash transfers helped increase school enrollments from 69.6% to 70.6%.
• Crisis recovery- Basic income can help people cope with crises like automation, unemployment, climate change, pandemics and inequality.

The Economic Survey of India suggested a UBI of Rs 7,620 per annum

What are the challenges in providing UBI?

• Fiscal feasibility- An UBI that covers the entire population would require huge amount of public spending estimated at 5-10% of GDP.
• Economic burden-The fund for UBI would be generated by raising taxes, cutting other public expenditures, or increasing fiscal deficit, thus having both political and economic implications.
• Labour market distortion- UBI is independent of work status which might reduce the motivation and incentive for work, education and skill development.
• Dependency- UBI would create a culture of dependency which may lead to mindless expenditures and add to debt.
• Behavioural effects- UBI might increase the consumption of alcohol, tobacco and other harmful substances, especially among men, who might misuse the money intended for the household.
• Social acceptability- It might also challenge the existing norms and values of work, merit, responsibility and solidarity, and create social divisions and conflicts.

What lies ahead?

• The challenges in UBI implementation must be tackled by designing UBI that is affordable, feasible, efficient, equitable and acceptable.
• Robust support systems to complement UBI, such as universal healthcare and education, will ensure better utilisation of the money.

References

1. Down To Earth- UBI a solution for diverse country
2. Down To Earth- Can Universal Basic Income tackle India’s poverty
3. IMF- Basics of Universal Basic Income
4. Microsave | UBI image