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Universal Basic Income (UBI)

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January 23, 2024

Why in news?

Universal Basic Income (UBI) can strengthen welfare architecture and unlock the nation’s latent demographic potential.

What is Universal Basic Income (UBI)?

  • UBI - It is an income support mechanism typically intended to reach all or a very large portion of the population regardless of their earnings or employment status.
  • Objective- To provide enough to cover the basic cost of living and provide financial security.
  • Principles – The fundamental principles of UBI include
    • Universal
    • Unconditional
    • Periodic
    • Cash payment
    • Individual​​​​​​

principles-of-ubi

A universal basic income provides a monthly stipend that would ensure that a person would be above the poverty line without any other source of income.

A minimum income guarantee, on the other hand, is at the discretion of the government of the day - it can be equal, more or less than the poverty line expenditure.

What is the significance of UBI?

  • Resource manangement- Universality and unconditionality would mean that the government does not need to spend time and resources in assessing eligibility of the potential beneficiaries.
  • Poverty reduction- It would bring everyone’s income above the poverty line, giving people enough money for their basic needs and necessities.
  • Basic income pilot in Hyderabad, WorkFREE, has seen increased health insurance coverage among participants.
  • Fights unemployment- It would act as act as security net for the millions of people who will be left jobless by the tech revolution.
  • It can be used to promote self-employment among the citizens and increase the employment opportunities in the economy.
  • Promote entrepreneurship- It would cover the risks involved in starting new business and foster the entrepreneurial ideas in the country.
  • Social empowerment- It guarantees an income for non-working parents and caregivers, thus empowering important unpaid roles, especially for women.
  • Impetus to social capital- Basic income programmes from around the world show evidence of people being able to invest in better housing, healthcare, education, savings etc.,
    • SEWA pilot project in Maharashtra revealed that the cash transfers helped increase school enrollments from 69.6% to 70.6%.
  • Crisis recovery- Basic income can help people cope with crises like automation, unemployment, climate change, pandemics and inequality.

The Economic Survey of India suggested a UBI of Rs 7,620 per annum

What are the challenges in providing UBI?

  • Fiscal feasibility- An UBI that covers the entire population would require huge amount of public spending estimated at 5-10% of GDP.
  • Economic burden-The fund for UBI would be generated by raising taxes, cutting other public expenditures, or increasing fiscal deficit, thus having both political and economic implications.
  • Labour market distortion- UBI is independent of work status which might reduce the motivation and incentive for work, education and skill development.
  • Dependency- UBI would create a culture of dependency which may lead to mindless expenditures and add to debt.
  • Behavioural effects- UBI might increase the consumption of alcohol, tobacco and other harmful substances, especially among men, who might misuse the money intended for the household.
  • Social acceptability- It might also challenge the existing norms and values of work, merit, responsibility and solidarity, and create social divisions and conflicts.

Universal basic income

What lies ahead?

  • The challenges in UBI implementation must be tackled by designing UBI that is affordable, feasible, efficient, equitable and acceptable.
  • Robust support systems to complement UBI, such as universal healthcare and education, will ensure better utilisation of the money.

 

References

  1. Down To Earth- UBI a solution for diverse country
  2. Down To Earth- Can Universal Basic Income tackle India’s poverty
  3. IMF- Basics of Universal Basic Income
  4. Microsave | UBI image
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