11 Dec

Universal Basic Income

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Content

• Definition
• UBI Has three components
• The time has come for UBI because of following reasons
• The Conceptual Case Against UBI / Criticism of UBI / Factors hindering implementation of UBI
• Why Universalize

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Definition

• A basic income (unconditional basic income or universal 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 government or some other public institutions, in addition to any income received from elsewhere.

UBI Has three components

i. Universality
ii. Unconditionality
iii. Agency ( by providing support in the form of cash transfers to respect, not dictate, recipients’ choices)

The time has come for UBI because of following reasons

i. Social Justice

• UBI is, first and foremost, a test of a just and non-exploitative society. Almost every theory of Justice has argued that a society that fails to guarantee a decent minimum income to all citizens will fail the test of justice.

ii. Poverty Reduction

• Conditional on the presence of a well-functioning financial system, a UBI may simply be the fastest way of reducing poverty. The COVID-19 pandemic highlighted how the poor were most vulnerable and needed an assured income to fulfil their basic needs.

iii. Employment concerns

• As we move towards a more technologically competent world, a large section of the workforce may not be able to find work. UBI can be granted to compensate for the losses to make ends meet.
  • Further, a basic income will make employments less exploitative.

iv. Agency

• Problems with other schemes to deal with poverty
  • Our current welfare system, even when well intentioned, inflicts a indignity upon the poor by assuming that they cannot take economic decisions relevant to their lives.
• UBI, an unconditional cash transfer treats them as agents, not subjects.
  • It liberates citizens from paternalistic and clientelist relationships with the state.
  • By taking the individual and not the household as the unit of beneficiary, UBI can also enhance agency, especially of women within household.

v. Administrative Efficiency and Transparency

• The existing welfare schemes are riddled with misallocation, leakages and exclusion of
  the poor.
• UBI is a way of ensuring that state welfare transfers are more efficient so that the state can concentrate on other public goods.

vi. Increase in financial inclusion

• Payment – transfers will encourage greater usage of bank accounts, leading to higher profits for banking correspondents (BCs) and an endogenous improvement in financial inclusion.
• Credit – increased income will release the constraints on access to credit for those with low income levels.
• Profitable for banks: More money in the bank accounts, which have remained inactive.

vii. Numerous Successful trials have found that basic income, whether given to everyone or specific groups or communities, improve health, life satisfaction, trust in others and employment opportunities among participants.

• • A nationwide experiment in Finland showed these favourable results.

The Conceptual Case Against UBI / Criticism of UBI / Factors hindering implementation of UBI:

i. Weather UBI reduces incentive to work

• Critics conjure up images of potential workers frittering away their productivity. It may hamper labour supply.
• This argument is highly exaggerated?
  • For one thing, the levels at which universal basic income are likely to be pegged are going to be minimal guarantee at best; they are unlikely to crowd incentive to work.
  • One school of thought would argue that, it truly is a diminution of human dignity to suppose that the only motivation for which people work is necessity.

ii. Will UBI promote social vice like drinking, smoking etc?

iii. Should Income be detached from employment?

• Society already does this, but largely for rich and privileged.
  • Any society where any form of inheritance or accepting non work related income is allowed, already detaches incomes from employment.
• So receiving a small unearned income as it were, from the state should be economically and morally less problematic than the panoply of unearned incomes our society allow.

iv. Reciprocity: If society indeed is a “scheme of social cooperation”, should income be unconditional, with no regard to people’s contribution to society?

v. Fiscal cost given political economy of exit

• Once introduced, it may be difficult for government to wind up a UBI in case of a failure.
• This might affect implementation of other welfare schemes.

Why Universalize

• Limitations of Existing Schemes
  • Sheer large number of schemes (950+ by central government only)
    • Too much bureaucratic cost involved.
  • Effectiveness of the schemes is poor – Misallocation -> Leakage
  • Exclusion of genuine beneficiaries

How come an Universal UBI overcome these issues

• Every citizen getting basic income -> few chances of misallocation
  • Success hinges much less on local bureaucratic ability than do other schemes.
• UBI further reduces the burden on administration by doing away with the tedious task of separating the poor from the non-poor.
• Direct Benefit transfer eliminates out of system leakages and scope of diversion reduces considerably.
• Further because state is answerable to a larger section of its citizen, the out of system leakage further decreases.
• Universalization ends exclusion error.

Way Forward: Three principles that can help guide thinking in this direction.

a. De jure universality, de facto quasi-universality:

• Exclude on the basis of assets; Bring Give it Up Scheme; list of UBI beneficiary should be publicly displayed; Self-Targeting; Tax UBI;

b. Gradualism

• One of the guiding principles can by gradualism the UBI must be embraced in a deliberate, phased manner. A key advantage of phasing would be that it allows reform to occur incrementally  weighing the cost and benefit at every step.

c. UBI and redistributing resource transfers to states

• A number of state governments receive large amount of transfers that may not prima facie increase growth or consumption. The UBI offers a possible way around :
  • A part of the redistributing resource transfers may be transferred by the centre directly into beneficiaries accounts in the form of pilot UBI programme.

d. Other Key way-forwards:

i. Ensure 100% coverage of Jandhan-Aadhar and Mobile

ii. Create a framework for Centre-State Cooperation

• A key federal question will be the centre-state share in funding of the UBI. This would like the GST, involve complex negotiations between federal stakeholders.
• ESI suggest that initially, a minimum UBI can be funded wholly by the centre. The Centre can then adopt a matching grant wherein for every rupee spent in providing a UBI by the state, the centre matches it.

iii. Spread awareness about usefulness of UBI for the entire society and develop public support for it.

Conclusion:

• Like the social market economy, the UBI reconciles economic efficiency and social security. It is radical, but also just. It is liberal and contemporary. Therefore it may offer the best social political prerequisites for “prosperity of all” in the 21st century.
• India should begin to explore the nuances of shifting to basic income, explore alternatives, feasibility and gather evidence to make an informed choice.

Example Questions:

i. What is Universal Basic Income? What can be the advantage of UBI over the current poverty reduction efforts?
ii. Do you agree that Universal Basic income will facilitate a more inclusive society with reduced  inequalities? Give reasons for your answer