Time for us to work out a universal basic income

Context: India’s debate on the need and feasibility of a universal basic income (UBI) as an elementary safety net for all our citizens was revived again after the Economic Advisory Council to the Prime Minister released a report on inequality.

Regardless of divisions in opinion over the poverty levels in the country, inequality demands a bold policy response.

What are the two key suggestions made in the report?

Urban employment guarantee scheme: It advocates fallback job options for urban Indians along the lines of the Mahatma Gandhi National Rural Employment Guarantee Scheme, which assures rural residents 100 days of pay-for-work each year for the asking.

Universal Basic Income (UBI): The report also supports a UBI, an idea that is still seen as somewhat radical in policy circles.

How has the pandemic affected the economy?

Large numbers of asset-poor suffered a severe impact on their income.

Modest earners had been hit hard by a formalization drive a few years earlier, while an overall slowdown of India’s economy worsened a job scarcity that is yet to ease.

To be sure, free food rations and job handouts played vital roles in offering the poor relief. But the distress has spanned multiple socio-economic classes. Credible reports suggest that even middle-class homes were pushed into poverty.

What are the factors involved in the implementation of UBI in India?

For welfare efficiency, we should institute leak-proof direct transfers covering all adults.

Expensive scheme: No doubt, a UBI scheme would be expensive. For about a billion beneficiaries, it would cost an annual ₹12 trillion just for each adult to get a monthly ₹1,000.

– But what looks like premature welfarism today could well be affordable tomorrow as central coffers expand, especially if we cut  inefficient fiscal expenses and urge the non-needy to opt out of UBI net.

An eligibility cut-off is sure to be proposed, but a denial criterion could defeat its inclusivity and pose barriers to upward mobility at that level.

As for the worry of workers not working hard, an assured income would act as a belly-filler at best, so that should not deter an Indian UBI plan.

– In general, a decrease in an economy’s labour-supply caused by cash giveaways have been debunked by studies. In the US, a 2018 working paper by Ioana Marinescu on the behavioural effects of cash transfers found just a 1% drop in labour supply induced by a 10% income boost.

– Earlier research by Abhijit Banerjee and others, outlined in ‘Debunking the Stereotype of the Lazy Welfare Recipient’, had similar findings for emerging economies.

Way forward

It’s time for a plan to share public funds with all citizens in need.

Source: This post is based on the article “Time for us to work out a universal basic income” published in Livemint on 23rd May 22.