Is Universal Basic Income going to help you?

 

The words Universal Basic Income (UBI) have been thrown at us in many discussions related to finance. Apart from sounding similar to a lot of schemes existing in India like Unique Identification Number (UIN), not many are aware of what it is. There are rumours it might figure in the annual budget of 2017 but before that let's take a closer look at its details. 

Now, it is gaining attention again because the annual Economic Survey, which forms the basis of the annual budget, has suggested that UBI is a persuasive alternative for replacing existing welfare programmes. Yet it warned about implementation risks and the potential cost to government. 

 

What is Universal Basic Income ?

 

A basic income is a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.

 

PROS

 

 

With the UBI one can help the poor directly. A properly functional JAM (Jan Dhan, Aadhar and Mobile) system to ensure that the cash transfer goes directly into the account of a beneficiary will come into place. The scheme can help reduce poverty and vulnerability, provide insurance against events like demonetisation and recession, resulting in improvement in financial inclusion.

 

Arvind Subramanian, the Finance ministry's Chief Economic Adviser feels that the key merit of it is that it has the potential to improve the weak targeting of current schemes. Under the survey's calculation, a UBI that cuts the poverty rate to 0.5 per cent of the population would cost 4 to 5 per cent of GDP. The calculation presumes that the richest quarter of Indians do not get the income, because it says any programme cannot in practice strive for strict universality.

 

UBI gives the public a greater economic freedom to spend their money and it is also in line with the slogan ‘minimum government and maximum governance. Probably one will see a rise in spending on education and nutrition of women and children. It will also reflect in the crime rate coming down. People will actually have money in hand to spend.

 

In the context of automation slowly threatening the lower rung of jobs in industries in India, the UBI is good move. A graphic states that 69 per cent of India is under threat from automation. This could lead to what most people are tagging as technological unemployment, so the prospect of all members of a society getting some income despite their unemployed status could be an economic anchor.

 

It might go a long way in reducing the income inequality and economic stagnation as working for a living will no longer be the requisite. The threat of automation will also lead to development of new skills and creation of new jobs leading to more source of income.

 

CONS 

 

 

If one is getting paid for not doing any work, there are chances that productivity and creativity of people will be reduced and there will be a situation wherein the country is being paid for people doing nothing but are totally employable. However, initial reports suggest this is not the case.

 

The question as put forward by Niti Aayog Vice Chairman Arvind Panagariya is whether India has the fiscal resources to implement UBI for all citizens? The answer is a resounding No. Implementation will be the biggest challenge in front of the government. Increasing fiscal burden can prove to be problem, especially in times of recession. Funds will need to be diverted and where will the money for the upkeep and improvement of additional sectors of public life come from?  More Taxes? The UBI will require a major rollback of a lot of tax rebates and subsidies. Will India be ready for it? 

 

Another possible roadblock is “Who will come under BPL?” Guy Standing, Professorial Research Associate, School of Oriental and African Studies, University of London explained the dilemma very well. He said, “The idea to start it only for the BPL population doesn’t work very well, because there are identification issues. BPL system takes a long time to measure number of poor people, and there could be changes in composition of the BPL population, as some people may move up and below the poverty line…It just doesn’t work.”

 

For resources to reach the public directly, it is necessary that Centre-State negotiations on cost sharing for the programme be present. Judging by the previous history of Centre-State relations, it can be expected for the scheme to fall flat somewhere because of non-payment from either parties. And states may refuse to part with funds considering the impact on their purses, GST roll out etc..

 

No other country in the world has successfully implemented so we do not have an actual model to follow. Experiments with UBI are spreading across the world, from Finland and the Netherlands to Canada and France. Like a pilot project IN Madhya Pradesh the trials will only include the BPL people or even smaller section making it difficult to actually understand its implications on a large population. Going by points 2-4 the poor will still have to rely on welfare schemes which the UBI is trying to eliminate.