How free basics can help India grow rich?

Source: The post is based on an article “How free basics can help India grow rich” published in The Times of India on 20^th August 2022.

Syllabus: GS 3 Inclusive Growth

Relevance: The Universal Basic Income (UBI)

News: Recently, countries like South Korea, Finland, and Canada have made some Universal Basic Income (UBI) experiments, while India is witnessing the debates on the merits of free basic facilities. 

Why should India provide free basic facilities?

(1) There is a growing global consensus about the redistribution of wealth. As per various leftists, the UBI can be a means to correct growing income equality in modern society.

(2) As per some pro-market people, the UBI is helpful to sustain the level of consumption in the economy. For example, Elon Musk, Mark Zuckerberg, and French economist Thomas Piketty have proposed it.

(3) There are some historical experiences related to the benefits of free basic facilities in western countries.

(a) Germany has provided and benefitted from free education and healthcare for years. It implemented the Bismarckian pension model in 1889 which arose to help the landless workers migrate to cities amid rapid industrialization.

(b) After the Great Depression, America’s social security system was implemented. This resulted in the transfer of cash which provided relief to the people and also kick-started demand in a struggling economy.

(4) Over the years, productivity has risen faster than wages in almost all economies (say the US). In India, the share of wages in total output fell from 30.3% in 1981-82 to 18.9% in 2019-2020.

What are other reasons to implement UBI in India?

(1) Limitation of Contribution Based Models: Unlike, the rich countries, most workers in India are working in the unorganized sector. Thus, a contribution-based model will help only salaried people, whose number was only 24% in 2019.

(2) Evident in the existing schemes: the contribution-based model has been implemented in old age and disability schemes. These schemes exclude a large number of people.

(3) Make population employable: Free education and health care reduces out-of-pocket expenditure and make the population more employable.