CURRENT AFFAIRS
UNIVERSAL BASIC INCOME ( UBI )
What is UBI?
Universal Basic Income is a periodic unconditional cash
transfer to every citizen of the country. Wherein
economic or social background of any citizen is not
taken into consideration. It's key feature is that it is a
direct cash transfer and not kind transfer like most of
existing schemes which the people are not able to avail
due to lack of awareness. This would also reduce
pilferage of cash in the system and put an end to
unwanted red-tapism of the executives. UBI would also
help the government in reducing the wealth gap and also
in elimination of poverty and inequality. As human labor
is being substituted by technology, there will be reduced
wage income and reduced purchasing power. UBI will
compensate for reduced purchasing power.
How UBI works?
Under UBI, only those with zero income will receive the
full benefits in net terms. For those, who earn additional
income over the basic income, the net benefits will taper
off through taxation. So even though the basic income is
universal, only the poor will receive the full benefits.
There would be drastic changes in the way government
spends its revenue generated from taxation and other
sources. Currently, Government spends its revenue on
various services as well as on subsidies. It also works
on the basis of government primarily stepping off from
service delivery.
What are the advantages of UBI?
First, UBI would give individuals freedom to spend the
money in a way they choose. In other words, UBI
strengthens economic liberty at an individual level. This
would help them to choose the kind of work they want to
do, rather than forcing them to do unproductive work to
meet their daily requirements. Universal Basic Income
would be a sort of an insurance against unemployment
and hence helps in reducing poverty. UBI will result in
equitable distribution of wealth. As explained above,
only poor will receive the full net benefits. Increased
income will increase the bargaining power of individuals,
as they will no longer be forced to accept any working
conditions. UBI is easy to implement. Because of its
universal character, there is no need to identify the
beneficiaries - which is a common problem in
Targeted welfare schemes. As every individual receive
basic income, it promotes efficiency by
reducing wastage in government transfers. This would
also help in reducing corruption. Considerable gains
could be achieved in terms of bureaucratic costs and
time by replacing many of the social sector schemes
with UBI. As economic survey points out, transferring
basic income directly into bank accounts will increase
the demand for financial services. This would help
banks to invest in the expansion of their service
network, which is very important for financial inclusion.
Under some circumstances, UBI could promote greater
productivity. For example, agriculture labourers who
own small patch of land and earlier used to work in
others' farm for low wages, can now undertake farming
on their own land. In long term, this will reduce the
percentage of unused land and helps in increasing
agriculture productivity.
What are the cons of UBI?
According to World Bank, in India, there are only 20
ATMs for every one lakh adult population. Nearly one-
third of the Indian adults remain unbanked. With such a
state of financial service infrastructure and financial
inclusion, it would be difficult for the people to access
their benefits. Financing the 'guaranteed minimum
income' would be another challenge. There are chances
that UBI would become an add-on to existing subsidies
rather than replace them. There is no guarantee that the
additional income will be spent on education, health etc,
there are chances that the money will be spent on
'temptation goods' such as alcohol, tobacco, drugs etc.
Given the large population size, the fiscal burden on
government would be high. Also as Economic Survey
2016-17 noted, once implemented, it may become
difficult for the government to wind up a UBI in the case
of failure. If the UBI is funded by higher taxes, especially
by the indirect taxes, it will result in inflation. This, in
turn, will reduce the purchasing power of the people and
lowers the value of the amount transferred. A
'guaranteed minimum income' might reduce
the availability of workers in some sectors which are
necessary but unattractive and raise the wages of such
works. For example, the wages of agriculture labour
might increase due to non-availability of workers willing
to work in others farm.
article by Advait Nambiar