Universal Basic Income in India: A Pathway to Inclusive Growth and Social Protection

Introduction

The International Labour Organization (ILO) has brought attention to the global issue of jobless growth, exacerbated by automation and artificial intelligence (AI). These factors, along with rising youth unemployment and inequality in India, have reignited debates around Universal Basic Income (UBI) as a potential tool for providing a social safety net. India’s 2016-17 Economic Survey first proposed UBI as a solution to replace inefficient welfare schemes, further bolstered by the development of the JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure, enhancing the feasibility of Direct Benefit Transfers (DBTs) for UBI.

UBI as a Safety Net Policy

UBI should be viewed as a social safety net policy, rather than a direct solution for employment growth or economic development. It is intended to provide income support to individuals, helping them manage the consequences of unemployment, poverty, and financial insecurity. UBI’s objective is to ensure a basic income floor rather than solving structural economic issues like job creation.

Key Benefits of Universal Basic Income (UBI)

1. Poverty Alleviation and Financial Security: UBI provides direct cash transfers to all citizens, ensuring a minimum income that can lift people out of poverty, especially in high-poverty regions.
2. Reduction in Administrative Costs: Universal transfers mean fewer intermediaries, reducing administrative costs and minimizing exclusion errors compared to targeted schemes.
3. Increased Consumption and Economic Growth: UBI enhances purchasing power for lower-income groups, potentially boosting aggregate demand, especially during economic downturns.
4. Support for Vulnerable Populations: UBI can provide financial security for vulnerable groups like the elderly, disabled, and unemployed, who may not benefit from work-based welfare programs such as MGNREGS.
5. Human Development Investment: Families with guaranteed income are more likely to invest in healthcare and education, improving human development indicators over time.
6. Mental Health and Social Stability: By reducing financial insecurity, UBI could alleviate mental stress and even lower crime rates, as individuals with stable income are less likely to engage in criminal activities.
7. Fiscal Efficiency: By streamlining welfare programs, UBI could address the fragmented social security framework in India. The National Food Security Act currently covers 67% of the population, but 90 million eligible people are excluded from legal entitlements. UBI would reduce these errors, providing a more efficient system.
8. Promoting Entrepreneurship and Innovation: UBI can encourage entrepreneurial risks by providing a financial safety net. This would align with India’s aspirations for a USD 5 trillion economy, especially as gig economy workers are projected to grow to 5 million by 2029-30.
9. Climate Resilience and Adaptive Capacity: UBI could help build climate resilience by providing a financial buffer during climate shocks and facilitating adaptation strategies, aligning with global initiatives like COP 28’s just transition
10. Soft Power and Global Leadership: A successful UBI program could enhance India’s geopolitical influence by positioning it as a leader in social policy innovation and contributing to global discussions on inequality.

Challenges and Concerns Associated with UBI Implementation

1. Fiscal Burden: Large-scale UBI proposals range from 5% to 11% of GDP, which presents a significant financial burden on the government. Even a modest UBI would require substantial additional expenditure.
2. Impact on Existing Welfare Schemes: Replacing current welfare schemes with UBI might risk eliminating targeted programs crucial for vulnerable populations, such as PDS or MGNREGS, which could worsen outcomes for certain groups.
3. Inflationary Pressures: Large-scale cash transfers could lead to demand-pull inflation, especially in rural and underdeveloped areas, where supply constraints are more pronounced.
4. Work Disincentives: Critics argue that UBI might create disincentives to work, particularly in sectors that rely on low-wage labor, which could exacerbate labor shortages in critical areas like agriculture and construction.
5. Implementation Challenges: Biometric failures and network issues, seen in schemes like PM-KISAN, raise concerns about the ability to ensure universal access and prevent exclusion errors in UBI distribution.
6. Opportunity Cost: Diverting resources to UBI could crowd out investment in crucial sectors like healthcare (currently at 1% of GDP) and education (down to 2.9% of GDP), impeding long-term development.

State and Central Government Schemes Related to UBI

Several schemes at the state and central levels provide unconditional cash transfers that resemble UBI in spirit

• Rythu Bandhu (Telangana) and KALIA (Odisha) offer payments to farmers.
• PM-KISAN provides ₹6,000 annually to farmers, covering nearly 10 crore households.
• These schemes face inclusion and exclusion errors due to logistical challenges, including Aadhaar verification and bank rejections.

Financial Feasibility of UBI in India

• Implementing a full-scale UBI would cost 3-4.9% of GDP, which raises concerns about fiscal sustainability.
• A more feasible approach would be a limited UBI, pegged at 1% of GDP, which would provide ₹144 per month per citizen (or ₹500 per household). This amount, although small, could be gradually scaled up, building on schemes like PM-KISAN.

Feasibility vs. Desirability of UBI

• Feasibility: UBI may not be financially viable in its full scale due to India’s fiscal constraints.
• Desirability: UBI is desirable as a universal income support system that can reduce inequality and ensure a minimum consumption guarantee.
• A modified UBI that is less ambitious but more financially feasible should be explored.

The Way Forward

1. Phased Implementation: A modified UBI could start by targeting vulnerable groups (e.g., women, elderly, disabled, landless laborers) and be rolled out gradually across other sections.
2. Leveraging JAM Infrastructure: The JAM trinity (Jan-Dhan, Aadhaar, Mobile) should be used to facilitate UBI distribution. Improvements in banking access, Aadhaar-based verification, and internet connectivity are crucial for successful implementation.
3. Integration with Existing Schemes: UBI can be combined with schemes like MGNREGS and PDS for better coverage, avoiding the complete elimination of essential welfare programs.
4. Support for Job Creation: UBI should be paired with job creation policies that stimulate economic growth and employment, as UBI alone cannot address structural issues like unemployment or skills gaps.
5. Robust Monitoring and Evaluation: A comprehensive monitoring system using big data analytics and AI should track UBI’s impact on poverty, inequality, and overall economic indicators. Regular social audits should ensure transparency and accountability.

Conclusion

While UBI holds promise for addressing poverty and inequality, its large-scale implementation faces significant budgetary challenges. A modified UBI, rolled out in phases and integrated with existing welfare programs, could offer a more viable solution. By ensuring a balanced and comprehensive social safety net, UBI can contribute to India’s vision of an inclusive economy while addressing the concerns of financial feasibility and implementation challenges.

MAINS QUESTION

Critically analyze the role of Universal Basic Income (UBI) in addressing structural issues such as unemployment, poverty, and inequality in India. Can UBI be a sustainable alternative to existing welfare schemes like MGNREGS and Public Distribution System (PDS)?