Universal Basic Income: Will it work in India?

Universal Basic Income: Will it work in India?

The idea of UBI is not new but in the past few years, it has resurfaced globally in a very big way as a means of redistributing income.

The central government is believed to be working on a universal basic income (UBI) scheme for the poor ahead of the General Elections. The Economic Survey of 2016-17 had first flagged the UBI as "a conceptually appealing idea" and a possible alternative to social welfare programmes targeted at reducing poverty.

What is UBI?

UBI is a fixed income every adult - rich or poor, working or idle - receives from government. The idea is that a society, as a first priority, should look out for its people's survival; the lesson is that possibly it can do so without unequal redistributive plans.

According to Basic Income Earth Network (BIEN), a global network of academics, students and social policy practitioners promoting and serving as a repository of published research on UBI, "A basic income is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement."

Why UBI?

The idea of UBI is not new but in the past few years, it has resurfaced globally in a very big way as a means of redistributing income. Several experiments/pilots are being currently run across the world, but not yet adopted by any country as such.

The primary reasons for the tilt towards UBI are two:

  • Growing and vast inequality
  • Threat of automation affecting jobs and creating joblessness

Some experts think the existing system "would falter and fail if confronted with vast inequality and tidal waves of joblessness." (Annie Lawrey, author of "Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World")

Basic premise of Economic Survey (ES) of 2016-17's UBI: "A just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity." Three components of this UBI model are: universality, un-conditionality and agency (by providing support in the form of cash transfers to respect, not dictate, recipients' choices). Its key features:

  • Poverty line for 2016-17 has been fixed at Rs 7,620 per year, using Tendulkar's poverty line formula (inflation indexing @ Rs 5,400 per year fixed for 2011-12 to 2016-17 with a target poverty level of 0.45%) to lift all poor above the Tendulkar poverty line.
  • It takes 75% of population as universal for UBI purpose.
  • Cost and fiscal space: ES model will cost 4.9% of GDP - as against 5.2% of GDP spent on all 950 central sector and centrally sponsored sub-schemes (actual allocation of 2016-17). So, fiscal space exists - but only if UBI replaces all existing Central govt. schemes.
  • Income transfer through DBT and by replacing all Central schemes, using Aadhaar.
  • Use gradualism - like starting with women, elderly, widows, disabled etc.

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Why Economic Survey model raises many questions

Economic Survey model is based on gross under-estimation of poverty. The Tendulkar's poverty line was criticised widely for gross under-estimation of poverty - per day per capita expenditure of Rs 27.2 in rural and Rs 33.3 in urban areas for 2011-12. It fixed 22% of population as poor. Therefore, C Rangarajan revisited it in 2014 and put poor families at 29.5% (363 million) - fixing per capita per day expenditure at Rs 32 in rural and Rs 47 in urban areas.

Niti Aayog Task Force on Elimination of Poverty report supports the Tendulkar's formula saying that the Rangarajan formula has not been officially accepted. In 2016, Niti Aayog justified this by saying:

(a) The sole objective behind the poverty line being to track progress in combating extreme poverty, it makes more sense to it at a level just sufficient for accessing the basic necessities of life; and (b) Setting the poverty line at a level at which the individual has comfortable existence will not allow us to assess the progress in the fortunes of those in abject poverty.

Table 1: Poor families in millions, % of total population and parameters


Source: Niti Aayog and other govt reports

UBI can't be at the cost of expenditure on health, education or rural infrastructure

  • 950 central sector and centrally sponsored sub-schemes include those of food subsidy, fertiliser subsidy, NREGA, SSA, LPG subsidy, Awas Yojana, Gram Sadak Yojana, ICDS, Swachh Bharat, Mid-day meals etc. These are meant for long-term improvement in human development, rural infrastructure, employment etc. and can't be substituted by cash transfer.
  • Therefore, replacing existing schemes with cash transfer will adversely impact the development goals of India.
  • India stood at 130 out of 189 countries in the UNDP's 2018 HDI ranking. Movement in the HDI are driven by changes in health, education and income.

India already has UBI-like scheme under which too little is paid, not hiked since 2006/7 - Under the National Social Assistance Programme (NSAP) since 1991, the Central government gives pensions to elderly, widows and disabled. The Centre's component is between Rs 200 and Rs 300.  If GOI is interested in UBI, it can easily begin by increasing the pension amounts.

Not tried anywhere with India's level of income disparity and inequality

India's experience with NSAP (given above) and DBT (details in the 'notes') is limited and unsatisfactory. Need for good pilots of sufficient time. India should join in carrying out large scale experiment/pilot like Finnish and Canadian - to generate empirical evidence.

  • Aadhaar-based DBT's flaws: Exclusion and authentication errors leading to starvation deaths in Jharkhand and other such experiences elsewhere.

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