Jan Dhan 2.0: Consider a universal basic income

Source– The post is based on the article “Too Few Seats For The Kotas” published in the “mint” on 30th August 2023.

Syllabus: GS3 – Indian Economy – Inclusive growth. GS2- Government policies and interventions

Relevance: Issues related to social safety net and financial inclusion

News– The article explains the successful implementation of Jan Dhan Yojana. It also explains the concept of Universal Basic Income.

What are some successful accomplishments of Jan Dhan Yojana scheme?

In less than ten years through the Pradhan Mantri Jan Dhan Yojana, the Indian government has successfully established over five hundred million Jan Dhan accounts.

Finance Minister Nirmala Sitharaman recently highlighted that more than 55.5% of these bank accounts belong to women.

The scheme has facilitated the direct transfer of cash benefits to various recipients. It has also provided a formal credit avenue, and saved many poor individuals from the clutches of moneylenders.

The scheme empowered the government to swiftly provide aid during times of crisis. In 2020, for instance, the Jan Dhan scheme proved instrumental in responding to the COVID-19.

The monthly relief of ₹500 for three months, allocated to each of the 200 million Jan Dhan accounts held by women, played a crucial role in alleviating panic.

What are some facts about Universal Basic Income (UBI)?

Universal Basic Income (UBI) is a very straightforward form of redistribution. It places every individual under the government’s financial support.

The idea is that in addition to its traditional roles of governance, the state should allocate public funds to provide each adult a fixed amount of money on a monthly basis for personal use.

The typical objection to this concept is that it has potential for moral hazard. The concern is that it might lead to a lack of motivation to work.

The outcome is influenced by the actual size of these monthly transfers. Modest transfers are unlikely to distort the incentives in the labor market.

Providing support to those in need could actually support an economy driven by an increasing demand for goods and services.

The next significant question revolves around the feasibility of the government implementing such a program.

While the ultimate aim of a UBI is comprehensive coverage, the list of beneficiaries doesn’t necessarily need to be truly “universal.”

High-income individuals would certainly be excluded. Even if nearly 68 million people who filed income tax returns last year are excluded, there would still be more than a billion Indians to account for.

A modest monthly UBI of ₹1,000 per person would result in an annual fiscal expenditure of ₹12 trillion.

This amount exceeds the budget allocated for infrastructure in the current year by about ₹2 trillion. It makes it a less attractive proposition at this current juncture.

Way forward-

If the economy continues to grow at a rate of 6% or more annually, it could potentially alter the financial calculation within a decade or even sooner.

As poverty decreases and our tax revenue expands, the demand for financial transfers would decrease as well.

It’s prudent to subject the concept of a Universal Basic Income (UBI) to a comprehensive assessment. Its broader economic effects would require thorough examination in advance.