A Case for Universal Basic Income (UBI) in India

In Union Budget 2019 Finance Minister Piyush Goyal announced a Direct Benefit Transfer (DBT) scheme – Pradhan Mantri Kissan Samman Nidhi­­– under which Rs. 6000 will be given to all small farmers per annum. It came just a week after Rahul Gandhi, President of Congress, said that the Congress will implement a Minimum Income Guarantee scheme in which a minimum income will be provided to everyone below the poverty line. Kalia scheme and Rythua Bandhua scheme are also similar minimum income benefit initiatives taken by Sikkim and Telangana respectively.

Till very recently, Universal Basic Income (UBI) as a policy measure was seen as a non-viable theoretical concept that was expected to remain in books– debated and discussed but not implemented. Even welfare economists like Amartya Sen were skeptical about the practicability of UBI, particularly in respect of the developing nations. The recent rise of interest in UBI comes as a surprise to most. Therefore, it is an opportune moment to analyse the following questions: What explains this rising acceptance of UBI? Is UBI really a good and workable policy in the context of India?

What is Basic Income? And Why?

The purpose of basic income is to address the rising inequality and to create a society with an equitable distribution of Income. More fundamentally, it is about creating a more just and fair society. Under the policy, every person meeting a certain criterion is to be given a basic income which is considered as necessary minimum amount needed for living a dignified life. Philippe Van Parijs and Yannick Vanderborght in their seminal work, “Basic Income: A Radical Proposal for a Free Society and a Sane Economy” argue that globalization, and the wave of automation have led to higher unemployment and more unequal societies; which is why we see a rising interest in UBI as policy alternative to remedy that. Earlier, there was a consensus between both the right and the left that continued growth would translate into more jobs and employment. The rising interest in basic income is a testament to the fact that this consensus has now ended.[1]

Indian unemployment data appears to fit their claim. NSSO’s report on unemployment, released recently amidst controversy, showed that unemployment rate touched its 45 year peak at 6.1% in the year 2017-18. The rising unemployment rate inevitably leads to a more unequal society, widening the gap between the rich and the poor. According to Credit Suisse’s Global Wealth Databook for the year 2018 the poorest 60% of the population held 4.7% of the total wealth of the country while the richest 1% held a staggering 51.5% of the share. In 2000, the share of wealth of the top 1% people was 36.8%. Not only is the wealth by the top few, huge in absolute terms but their proportion in the whole pie is also increasing at an exorbitant rate. According to Oxfam report for 2019, India’s top 1% people got richer by 39% in the year 2018 but for the bottom 50% of the population, the incomes grew at only a dismal 3%. A traditional economist might look at the GDP per capita numbers and say overall Indian Economy is growing at a rapid rate. But GDP numbers taken separate from these facts do not reflect a fair picture. In fact, it is only a few rich who are getting richer, the effect of which is overshadowing the rising poverty and unemployment in growth figures. It is convenient for public policymakers and government officials to project the numbers they want to and ignore critical details. However, the stark numbers of unemployment and inequality are hard to be ignored any further. This is why political parties in India seem so ever interested in resorting to a radical social welfare measures like basic income to ameliorate the poor living standards and address the rising inequality.

Good Policy Measure?

However, the harder question we need to ask is; whether this is a good policy measure in setting out to achieve our aim of more equitable distribution of Income. Parijs & Vanderborght in their book compare basic income with other conditional welfare policies to explain why an unconditional policy like this is a revolutionary idea. They argue that under conditional payment schemes– in India’s case let’s say MNREGA– poor are typically paid in return for the work they put in. While it does contribute in eliminating extreme poverty, it raises two important concerns. One, the problem of leakages and corruption in dissemination and implementation of the policy. Second, it leads to the problem of permanent welfare claimants. Often, the benefits are taken up by the few already privileged and do not reach out to the people it was actually meant for. Basic Income as an unconditional direct transfer scheme quite efficiently tackles both these concerns. Under current anti-poverty programmes in India, you need to possess a Below Poverty Line (BPL) card to be able to access the benefits of the scheme. However, as IHDS survey shows about 50% of the poor do not have BPL card and about one third of the non-poor have it. This inefficiency would cease to exist if an unconditional transfer such as the basic income was in place.

Parijs and Vanderborght also argue that at a more fundamental level basic income is a fair and equitable policy that ensures that every individual gets a certain sum of money which is necessary for living a basic dignified life. Even if not a brilliant measure to eradicate poverty, it is certainly an important basic right which should extended to everyone in order to ensure “a free society and a sane economy”[2].

Economically Sustainable?

The most critical concern economists have with the policy–given its huge funding requirements­–is how the scheme should be funded. Is it economically sustainable? So far, most experiments with the basic income have been done in developed parts of the world– US, Britain, Denmark, Germany and France. And it costs the exchequer an unbearable amount. For example- a yearly payment of 10,000$ to every adult in USA– which is less than the individual poverty line in the USA at 13,064$– is expected to exhaust almost entire tax revenue collected by the federal government. At a poverty line, as high as 13,064$ it is close to impossible to provide a basic income which will lead to any real welfare gains without burning the tax revenue. Contrasting it to India, Pranab Bardhan– one of the strongest and most outspoken proponents of basic income in India– argues that greater inequality and higher poverty levels makes basic income a more sustainable policy, here. Even a little increase in income can lead to a considerable rise in happiness and living standards for a major chunk of the population in India. Expounding on this he says, that if an annual sum of Rs.10,000 which is about three fourth of the poverty line is guaranteed to all citizens of India unconditionally, the total amount will come out to be 10% of the GDP. Much larger sums than this are lost in providing implicit or explicit subsidies and in the form of tax exemptions given to the corporate sector in a year. By discontinuing some of these subsidies the amount could be easily recovered.

Abdication of Responsibility

An easy mistake to make is to consider this as a policy alternative to all other social welfare schemes, which it is not. Economic Survey 2016-17, spearheaded by then Chief Economic Advisor Arvind Subramanian, was the first to propose a quasi-universal basic income model for India. The survey recommended that other already existing social welfare schemes be scrapped and the amount thus saved be used to fund basic income. Bardhan, strictly warns against replacing the scheme with other necessary welfare funding in Public education and Healthcare. It may replace most outrightly dysfunctional spendings but cannot replace necessary expenditures in essential public services, says Bardhan. Taking away the necessary welfare funding in health and education would mean as Amartya Sen put it, “an abdication of responsibility” on part of the government. The government is still responsible for making sure that basic health and education facilities reach the poor. Basic income at best can only be treated as an additional measure. A research by National Institute of Public Finance and Policy (NIPFP) states that roughly two thirds of total subsidy spending are “non-merit”, that is the benefits of these subsidies are accruing to the better-off sections of the population. Even if health, education, nutrition, environment and rural development related expenditures are not taken away and only non-merit subsidies are removed we can save up to 9% of the GDP, which covers almost the entire cost of basic income. Thus, it is economically possible for the government to sustain the scheme without having to let go off necessary social welfare schemes.

Societal Hazard

Another strong criticism against the scheme is that an unconditional income to the poor shall lead to socially hazardous expenditures such as alcohol, cigarettes and gambling. However, for the very poor strata of the society the standard of living is already so low that every additional unit of income is likely to yield positive improvement in standard of living. The experimental studies done in Namibia and India show that the standards of living do go up when the additional minimum basic income is provided. Under an experimental study conducted by UNICEF and SEWA in Madhya Pradesh, India, an unconditional basic income of Rs.200 per month was given to each adult resident in the sample villages. The experiments recorded a significant improvement in the living standards in terms of rising enrollment in schools, fall in child wage-labour, increasing diversification in work and increased income and productivity. Nearly 21% of the basic income recipient households noted an increase in income earning work or production. This experiment clearly allays the concerns that an unconditional sum given to poor strata is likely to be used up in societal hazardous activities. On the contrary, it showed that the labour productivity and labour hours worked actually went up after imposition of basic income.

Main Takeaway

The contention of the article is not to claim that basic income is an antidote to all our poverty problems. It does not even claim that basic income would necessarily create more jobs or achieve a more equitable society. It is merely to point out some of the significant strengths of the policy as opposed to other poverty alleviation measures and to allay some of the major concerns economists have with it. In other words, the article argues that while basic income is a good policy measure for developing countries and is likely to bring a number of positive results it will not be and cannot be a sure-shot solution to all our problems. Eradicating poverty, improving education, and bettering healthcare– all will require concerted efforts on part of the government including creating better social welfare infrastructure. For example- provision of basic income will not improve the healthcare system of the country if there are no good hospitals to go to.  Bardhan quite succinctly sums up the discussion saying, basic income may not actually even be an inequality eradication measure but it should certainly be a “basic citizenship right” that is guaranteed to everyone as the right to life.

[1] Parijs, Philippe van, and Yannick Vanderborght. 2017. Basic income: a radical proposal for a free society and a sane economy. Cambridge (MA): Harvard University Press.

[2] Parijs, Philippe van, and Yannick Vanderborght. 2017. Basic income: a radical proposal for a free society and a sane economy. Cambridge (MA): Harvard University Press.


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