Universal Basic Income in India

UBI is a very appealing idea which eases the bureaucratic process by replacing various social programs with a minimum grant in cash to every citizen. It has been a topic on the tables since the 1960s, with few countries conducting pilot tests, few calling it off in the midway, few using it in election campaigns. The idea comes from fair perseverance of equity and alleviation of poverty. Many countries including the US, Switzerland, Canada, the UK have presented the idea in the legislation but never had a majority backing it. It goes without saying that UBI can potentially alleviate poverty to a large extent. It also has its set of cons which cannot be overlooked. In this article, we will examine a pilot program conducted in India by UNICEF, discuss the pros and cons of UBI, and try to understand what prevents its implementation.

This topic has been largely spoken since 2016-17 Indian Economic Survey. The discussion of UBI in India began due to concerns about technologically driven unemployment and poor results of the ongoing welfare programs. Given India’s large size, implementation of UBI would have to be state-administered. Supporters believe this large-scale welfare program could be revolutionary and could provide a poverty alleviation blueprint for other developing countries. However, critics are wary of establishing such a wide-scale program because it might undermine the fragile social security architecture, cause already employed workers to drop out of labour force and encourage idleness, and also encourage wasteful spending.

From June 2011 to November 2012, Self Employed Women’s Association (SEWA) and the UNICEF, launched two pilot programs to examine the impact of unconditional, monthly transfers through a modified and controlled trial. These pilot programs were one of the first in Asia.

In both pilots, every man, woman, and child in the selected villages were given a moderate unconditional cash grant: 200 per adult per month and 100 per child per month for 12 months. After 12 months, their grants were raised to 300 and 150, respectively, per month for 6 months. A child’s grant was given to its mother or other designated guardian. These amounts accounted for 20 to 30 per cent of a monthly income for a low-income family. Here are some key findings- 

The results reflected that the villagers were better off and moreover satisfied with their living conditions as it evolved when they invested in the right things. Many people used some of the money to improve their housing, adding more space, making improvements to walls and improving and repairing roofs.

Probably the single most common critique of cash transfers is that people will waste their money. Women of the village mentioned that their husbands had started drinking less after receiving the basic income. Their explanation was that they experienced less stress as a result of improved economic security, which made them consume less alcohol. It is to be understood that cash is about choice. People are not ready to give choices to poor people, because they believe that they are poor because of bad behaviour. This is, of course, completely unfounded and deeply unfair. 

The program had a strong effect on savings with people starting to save in banks instead of at home. People shifted from relying on borrowings to relying on savings. An interesting finding is that, initially, people saved to safeguard themselves against shocks and crises – such as medical emergencies – but, by the end of the pilot, many had started saving to invest in livestock, fertilisers and other agricultural inputs.

The observations drawn from the trial hence reinforce the pro-UBI narrative. However, some economists suggest that UBI disturbs the social structure and gives the beneficiaries disincentive to work, which decreases the productivity level. Hence, the price of goods increases along with purchasing power of consumer leading to no real change. Critics say that it’s bad for people’s self-worth and that there are more efficient ways to spend government money to help those who can’t support themselves. Ian Goldin, a professor of globalization and development at the University of Oxford, argued that “Individuals gain not only income but meaning, status, skills, networks and friendships through work. Delinking income and work, while rewarding people for staying at home, is what lies behind social decay.” This, in fact, makes sense as money is one of the main factors that drives people to work. From among the pilot programs conducted worldwide, some cases seem to show that cash handouts help those who receive them in some ways — alleviating emotional stress and helping individuals pay their bills. However, it should not be a silver bullet for unemployment.

Pros-

1. Lays off the hazards of Indian Public Distribution System- IPDS entails a higher cost associated with the distribution of goods which must be stored and transported by a branch of the government. This is particularly costly due to the decentralized nature of the ration shops currently characterizing Indian rural life. The involvement of intermediaries increases the corruption possibility and does not make sure the benefit reaches the last person in the queue. 
2. Benefits the informal sector- UBI would uniquely benefit India because of its large informal sector. More than 90% of the Indian population works in the informal sector and receives no benefits or pensions, and hence no access to retirement savings, health benefits, or financial security. 
3. Financial inclusion- incorporating UBI through direct transfers would bring more people into the formal banking system which would increase rural access to formal credit. This is a huge positive for farmers as they often get trapped by informal credit indebtedness. 

Other benefits include increased participation in schools, stabilizer during a recessionary period,  simple financial assistance that minimizes bureaucracy, etc. 

Cons-

1. Universality- A very common concern regarding the UBI is whether or not it should be distributed to rich as well to the poor. Most advocates argue that it should be a universal and basic right for every citizen. They note that a UBI can be an effective safety net for anyone who encounters a crisis, including those who are middle class. However, there might be resistance to the wealthy gaining benefit of UBI.
2. Least requirements- The UBI is designed to help each citizen with as minimum criteria as possible. This eliminates the process of selection of beneficiary hence, preventing corruption, leaks, and risks of leaving out too many needy individuals. But, it does not concern with employment status, hence, money also goes to those who do not contribute to society through their labour.
3. Bad behaviour- Though worldwide pilot programs have disproved this notion of “unnecessary spending”(referred to as alcohol, cigarettes, and other temptation goods), it goes without saying that once UBI is implemented for a longer term, say 5 years, the real change in consumption of these goods would be negligible. 
4. Inflation- The hike in purchasing power will increase the demand for goods leading to an increase in price level i.e. inflation. As a result, there would not be an increased standard of living in the long run. 

The coronavirus has left critics thinking if UBI for a short term can minimize the upcoming economic devastation. A public poll by YouGov in 2020 has found that the majority of the public in the United Kingdom support a universal basic income, with only 24% unsupportive. In March 2020, over 170 MPs and Lords from all political parties signed a letter calling on the government to introduce a basic income during the coronavirus pandemic. 

Elon Musk is also known to have extended positive views on UBI saying that with automation taking over more and more jobs every year, free cash handouts would be the only solution in the long run. Meanwhile, Andrew Yang, a  young democratic presidential candidate is banking his 2020 run for the White House on the purpose of giving $1,000 per month to all citizens between the age of 18 and 64.

Economists and sociologists have supported a form of basic income as a way to distribute economic profits of publicly owned enterprises to benefit the entire population, also referred to as a social dividend, where the basic income payment represents the return to each citizen on the capital owned by society. These systems would be directly financed from returns on publicly owned assets and are featured as major components of many models of market socialism. Erik Olin Wright says this would allow for an expansion in the scope of the social economy by granting citizens greater means to pursue activities (such as the pursuit of art) that do not yield strong financial returns.

The truth is, with the dynamic shifts in the current culture due to the pandemic the global economy is fated to change in different ways, drawing social changes along with it. However appealing the idea of UBI is, one must consider the consequential changes in the social contract.

– Utsari Gupta Bhaya,

Writer, Bharat Bhagya Vidhata.