Universal Basic Income (UBI)


Despite making remarkable progress in bringing down poverty from about 70% at independence to 22% in 2011-12 (as per Tendulkar report), still multiple deprivations exist. A radical proposed solution to this is a Universal Basic Income (UBI).
The UBI is a right to basic income. UBI is premised on the idea that a just society needs to guarantee to each individual a minimum income for a dignified life with access to basic goods.  It is the acknowledgment of the economy as a common project and promotes social justice.

UBI would have three components

(i) Universality – UBI for all.
 (ii) Unconditionality – UBI without any conditions.
 (iii) Agency – UBI can make a citizen move away from being a subject of government welfare programme to agents of its own change.
UBI is proposed as unconditional without concern of people’s contribution to society.

UBI may be an acknowledgement of non-wage work related contributions to the society, for example, home making women contribution
Why Universalize?  

Misallocation of resources – Generally government allocates resources as per state capacity.

Since richer areas have better administration, so they receive more resources than the poorer areas.  Eg. In the top 6 welfare schemes in terms of their resources, under no scheme do the poorest districts receive more than 40% of the total resources  

Exclusion of genuine Beneficiaries – Because of misallocation many poor are excluded from welfare resources. States having over 50% poor got only about 33% MNREGA funds in 2015-16.  Therefore there is a need of universal welfare approach.
Some benefits of ‘universalization’ seen in recent schemes are –

(i) With food security universalization by National Food Security Act and PDS infrastructure, subsidy to bottom 40% has increased substantially since 2011-12.

(ii) Due to improvements in MNREGA like digitizing job cards, geotagging assets etc. there was seen an increase in women participation.

If there will be ‘Universal’ Basic Income, misallocation will be lesser and the exclusion of beneficiaries will reduce.

 The reasons are –

(i) It reduces allocation errors and administrative hassles as it is ‘universal’.

(ii) It reduces leakage because income is transferred directly to beneficiary bank account
  Arguments for and against

According to poverty level, consumptions level, income and inflation, the Economic Survey gives out a minimum UBI of INR 7620/year for 2016-17. This is supposed to be 4.9% of GDP.

The survey points out that UBI should be indexed to inflation for revision. There also is a need of a neutral political mechanism to consider UBI.  
Central subsidies are - 2.07% GDP while state subsidies amount to 6.9% of GDP. Although a fiscal space exists to start a UBI by rolling back on some subsidies, it is politically and administratively challenging.  

Economic survey suggests some guiding principles for a well designed UBI –

(i) De jure universality, De facto quasi universality –  It means that UBI would be universal in law but practically cover all but the non-deserving like the well off.  This is being suggested as giving even some money to well off would have resistance.

Following options have been suggested to fulfill this objective –

(i) Define the non-deserving based on ownership of key assets such as automobiles etc.

(ii) Adopt a ‘Give it up’ scheme to enable well off to opt out.

(iii) List of UBI beneficiaries should be publicly displayed which would “name and shame” the rich who avail UBI.  

(iv) Periodic self-verification system for beneficiaries to avail UBI may make rich opt out voluntarily as their opportunity cost of time is high.

So, poor would self-target into UBI.


The survey wants an incremental introduction of UBI. The options suggested are –  Allow UBI as a ‘Choice’ in place of existing entitlements. The advantages of this approach are –

(i) Choice gives people bargaining power with administrators (called Agency).

(ii) It incentivizes administrator to improvise performance otherwise beneficiaries may switch to UBI.  

The limitation of this approach is that it leaves problems of targeting and resource misallocation intact.  

UBI for women and Children

It would improve status of women and children too. Challenges faced in this option are –  

(i) Identifying the number of children.

(ii) Constantly phasing out boys from the beneficiary list once they turn 18.

(iii) It may incentivize households to have more children.

Universalizing across groups –

UBI should be made universal first across easily identifiable vulnerable groups like widows, old, pregnant women etc. The challenge to this may be of absence of bank accounts with them.  Centre can run a pilot UBI programme to transfer, a part of the redistributive resources to the poorer states, directly in the beneficiaries’ bank account as UBI. The challenge is of the limited capacities of these states.  

UBI in urban areas –

Urban areas are better than rural in banking infrastructure and people having bank accounts.  
The prerequisites of fulfilling a UBI for all are –

(i) JAM trinity – It has been observed that still 33% adults lack bank accounts. Also only 57% of Jan Dhan accounts are Aadhar seeded.

(ii) Centre-State negotiations on cost sharing in UBI would require consultations.
Survey suggests a minimum UBI funded wholly by centre and a co-contributory scheme thereafter with states.
Basic limitations to UBI

(A) It may lead to a disincentive to work and the work productivity may decrease.
But this objection is exaggerated because –

(i) UBI is only to guarantee minimum needs. One cannot live entirely on basic income.

(ii) A pilot study in Madhya Pradesh shows that with a basic income several marginal farmers shifted from wage labour to own cultivation thus raising productivity.
(B) It may promote spending on social evils like alcohol, tobacco etc.

But, the NSSO data of 2011-12 shows that evil/temptation goods find a smaller budget in overall rising consumption. Therefore, UBI alone will not lead to rise of temptation goods consumption.

A counter argument can be that, it would have been easier to universalize the present in-kind transfers (for example universal food subsidy) rather than bringing UBI.

Thursday, 13th Jul 2017, 02:30:32 PM

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