Benefits and Criticisms of Universal Transfers

Source: The post benefits and criticisms of Universal Transfers has been created, based on the article “A modified UBI policy may be more feasible” published in “The Hindu” on 18th October 2024

UPSC Syllabus Topic: GS Paper 3 – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context: The article discusses whether India should adopt a Universal Basic Income (UBI) to address unemployment and poverty. It explores the feasibility of a modified UBI as a social safety net and suggests combining it with existing welfare programs for better coverage.

For detailed information on Universal Basic Income read this article here

Why is UBI Being Discussed Again?

1. UBI is being discussed again due to rising concerns about unemployment and inequality, as highlighted by the International Labour Organization.
2. Automation and Artificial Intelligence have slowed global job growth, contributing to rising youth unemployment in India.
3. India faces a problem of jobless growth, where productivity increases without matching job creation, worsening inequality.
4. The 2016-17 Economic Survey of India recommended considering UBI as a solution to help those affected by unemployment and poverty.
5. UBI has become more feasible with India’s JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure, enabling direct benefit transfers.
6. The COVID-19 pandemic demonstrated the importance of income transfers in times of crisis, adding urgency to discussions around UBI.

What are the current income transfer schemes in India?

1. PM-KISAN: Provides ₹6,000 annually to all farmers. By 2020-21, it aimed to cover 10 crore households, with a cost of ₹75,000 crore (0.4% of GDP).
2. Rythu Bandhu Scheme (Telangana): Offers unconditional payments of ₹4,000 per acre to farmers.
3. KALIA (Odisha): Provides cash transfers to farmers to support their livelihoods.

What are the Benefits and Criticisms of Universal Transfers?

1. Benefits of Universal Transfers:
2. Reduced Administrative Costs: Universal schemes reduce costs by eliminating the need for beneficiary targeting, as seen in broader applications like PM-KISAN.
3. Minimized Exclusion Errors: By covering everyone, universal transfers reduce the risk of missing eligible recipients.
4. Fewer Intermediaries Involved: This directly lowers the chances of funds leaking before reaching the intended recipients.
5. Avoids Work Disincentives: Universal transfers provide a basic income without discouraging work, unlike some targeted programs that may reduce incentives to seek employment.
6. Criticisms of Universal Transfers:
7. High Financial Cost: Implementing a UBI could require up to 11% of GDP, posing substantial budgetary challenges.
8. Benefits to the Wealthy: The inclusion of wealthier individuals in UBI schemes raises concerns, although tax adjustments could offset the net benefit to high earners.
9. Implementation Challenges: Issues like Aadhaar verification failures and bank rejections have been problematic, as highlighted by the PM-KISAN experience.

Is UBI Financially Feasible?

1. Large-scale UBI proposals, amounting to 3.5%-11% of GDP, are financially challenging for India. Implementing such a scheme would require cutting other anti-poverty programs or raising taxes substantially.
2. A more feasible option is a limited UBI scheme pegged at 1% of GDP. This scheme would provide ₹144 per month to every citizen, similar to PM-KISAN, which currently supports farmers.
3. The PM-KISAN scheme, covering 10 crore households, costs ₹75,000 crore, about 0.4% of GDP. Expanding this scheme universally would cost approximately double.
4. The fiscal burden is manageable if it’s combined with existing schemes like MGNREGS.
5. Thus, a modified UBI scheme, rather than a full-scale one, could be financially feasible.

Question for practice:

Examine the financial feasibility of implementing a Universal Basic Income (UBI) in India, considering its potential costs and the possibility of combining it with existing welfare programs.