Universal Basic Income (UBI) is a type of guaranteed income in which all citizens or residents of a country receive an unconditional sum of money on a regular basis, either from the government or another public institution, in addition to any other income received.
Universal basic income has three components: universality, unconditionality, and agency.
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Universal Basic Income: Advantages
- Improved targeting of the poor:
- Because all individuals will benefit, the exclusion error will be zero.
- This means that no poor citizen will be excluded from receiving such benefits and will be deprived of such welfare.
- This will address the current situation of backward communities’ lack of access to government welfare programmes and ensure that the basic income grant has a trickledown effect.
- Flexibility in expenditure:
- UBI will treat beneficiaries as agents, allowing them to spend the money as they see fit for their benefits.
- It will charge them with determining their own spending proportions for utilities and other goods.
- This will allow people to better manage their money and improve their overall well-being.
- In this way, the government will be seen as respecting, rather than dictating, the choices of individuals.
- Insurance against shock:
- Wage inequality is increasing in today’s labour market due to the increasingly precarious nature of low-paid, low-skilled work. UBI steps in to protect those workers’ interests.
- UBI will, in general, act as a safety net against health, income, and other shocks.
- It will aid in the abolition of poverty and the vulnerability of socially and economically disadvantaged citizens.
- It is a guaranteed income that serves as a safety net in times of adversity and ensures economic and financial security.
- Financial inclusion:
- Income growth will enable financially insecure people to gain access to bank credit, which was previously restricted due to low levels of income.
- It will liberate them from the anguish caused by moneylenders. Furthermore, increased use of bank accounts will result in higher profits for banking correspondents (BC) and an increase in financial inclusion.
- The JAM (Jan-Dhan, Aadhaar, and Mobile) infrastructure can help supplement UBI implementation and increase efficiency and transparency.
- Assist people in attaining a minimum acceptable standard of living:
- UBI will ensure that people have the basic capabilities of health, education, and a minimum income.
- It will also ensure that people buy high-quality products rather than low-quality subsidised products.
- Administrative effectiveness:
- A UBI, rather than number of separate government programmes, will reduce the administrative burden on the state.
Universal Basic Income: Disadvantages
- Distortion of labour market:
- There is grave concern that UBI will distort labour markets by providing workers with a steady source of income, discouraging them from working.
- This cash transfer will reduce labour supply because workers will be able to quit their jobs without affecting their household income.
- There will be a subsequent loss of production and a slowing of the country’s economic activities.
- Economists argue that because there are fewer workers willing to work, cheap labour will be scarce, driving up commodity prices.
- As a result, the same basic income will make it difficult for recipients to afford the goods. This also has implications for the people of India’s food security.
- Difficulty in setting Universal basic income:
- While food subsidies are not affected by market price fluctuations, the basic income is extremely vulnerable to inflationary pressures.
- The purchasing power risk associated with it cannot be mitigated, affecting the real income of lower-income households. The shock to the wealthy will be minimal, if not non-existent.
- There is also concern about what and how the basic income level will be determined. If the basic income transferred is insufficient, it may not produce the desired results.
- As a result, the basic income under UBI should be set at a level that ensures a minimum acceptable standard of living for all members of society. However, it could be an expensive affair.
- Cash-induced gender disparities:
- Gender norms may govern the distribution of UBI within a household; men are more likely to exercise control over UBI spending.
- This may not always be true for other in-kind transfers.
- Households, particularly those headed by men, may spend the extra money on frivolous activities.
- Implementation:
- Given the current state of financial access among the poor, a UBI could place undue strain on the banking system.
- Rolling back will become difficult:
- If a UBI is implemented, the government may find it difficult to repeal it even if it fails.
- Equity vs Equality:
- The term ‘universal’ income implies that it is received by everyone, including the wealthy. Many groups may object to this, raising concerns about equity and state welfare for the poor.
Universal Basic Income: International Case Studies
As of early 2022, no countries had implemented a truly universal basic income model, though a few had launched UBI-like programmes aimed specifically at the most vulnerable people. Models of universal basic income differ in terms of funding, amount distributed, and other factors.
- Universal Basic Income in the United States:
- The US has conducted multiple universal basic income pilot programs, including the Alaska Permanent Fund, which grants each citizen a share of the state’s oil and gas revenues annually.
- Andrew Yang’s Freedom Dividend, which aimed to address job loss from automation, proposed a $1,000 monthly “partial dividend” for each adult.
- Universal Basic Income in Norway:
- Norway’s system is the closest to universal basic income, as it is a welfare state that guarantees all citizens residing in the country access to education, universal healthcare, and social security or benefits.
- Nonetheless, beneficiaries of the financial support must comply with requirements, such as job-seeking, law-abiding, voting, and tax-paying.
- Universal Basic Income in Finland:
- In 2016, Finland initiated a basic income experiment by providing 2,000 randomly selected unemployed citizens with a monthly sum of 560 euros ($640).
- Participants reported improved happiness and health and appreciated being freed from the administrative burden of proving their eligibility for unemployment benefits.
- Universal Basic Income in Brazil:
- Brazil is perhaps the most outspoken supporter of universal basic income, with the Bolsa Familia social program established in 2004 providing a stipend of about 20% of minimum wage to the neediest 25% of the population for purchasing food, clothing, and school supplies, resulting in improved living conditions, health, housing quality, and nutrition, particularly for children.
- Universal Basic income: A case of India
- A pilot project in Madhya Pradesh between 2011 and 2012 provided basic income to 6,000 Indians, coordinated by the Self-Employed Women’s Association and funded by UNICEF.
- It includes two studies, in one study, eight villages received a monthly payment of 200 rupees for adults and 100 rupees for each child, which increased to 300 and 150 rupees respectively after a year.
- In the other study, one tribal village received an income of 300 rupees per adult and 150 rupees per child.
- Receiving a basic income led to improved sanitation, nutrition, and school attendance.
Figure: Countries with Universal Basic Income (Courtesy: worlpopulationreview.com)
Universal Basic Income: Expert Views
- Abhijit Banerjee, the Nobel laureate, in his book “Good Economics for Hard Times”, has mentioned about Universal basic income and called it ultra universal basic (UUBI) income because any universal income that governments of poor countries can afford will be ultra basic. He further suggested that the best combination would be a UUBI which everyone can access when they need it, and larger transfers targeted to the very poor and linked to preventive care and children’s education.
- Through the think-tank “Ideas for India”, Debraj Ray proposed that each recipient receive a fixed share of gross domestic product – a “universal basic share (UBS).”UBS is in tune with the GDP of the country so it insulates against the shock of the financial system.
- Economic Survey, 2016-17 discovers that India’s largest welfare schemes are poorly targeted; in contrast, it contends that a UBI distributed directly into bank accounts will limit pilferage, be easier to administer, and be a more effective antipoverty intervention. Arvind Subramanian also predicted that India would move towards a quasi-basic income.
- Former RBI governor, Bimal Jalan said in the year 2018 that India is ready for basic income provision and suggested that basic income must be above poverty line. He also suggested that India can start by reducing subsidies and merging them with the help of digital economy and can-do income transfer easily.
- Because of the “lower poverty threshold” and poor implementation of existing welfare schemes, Pranab Bardhan, an Indian Economist, argued that basic income is more desirable in a poor country like India.
- In regard of Universal basic income, former economic advisor Vijay Joshi believed that India’s welfare schemes were causing a fiscal deficit and crowding out public spending, and this issue can be resolved by implementation of UBI.
- Amartya Sen saw basic income as a perfect excuse for the Government of India to abdicate their responsibility and said that it may lead to more privatisation in India as people will spend more toward private services including education and healthcare.
