Universal Basic Income
What is Universal Basic Income:
Basic income refers to a minimum income which can provide for basic necessities sufficiently for all. It should be given to all irrespective of their employment status. Additionally, even post education if a person is not employed, he / she should be given the basic income.
The world over, policymakers from various advanced countries are considering to include basic income as part of the social welfare model in their countries.
Finland, on a pilot basis, is planning to select two thousand unemployed persons who will receive certain basic monthly tax free income for next two years.
A similar experiment of guaranteed unconditional basic income was done in Madhya Pradesh also in 2014.
UBI versus subsidies
Presently, the central and state governments together spend 4.2% of GDP on a set of major explicit subsidies, which includes the subsidy cost under the Public Distribution System (PDS), fertilizers, railways, electricity, sugar, LPG, kerosene and water. This does not include social sector spending such as that on education and healthcare.
- Even if the central and state governments agree on phasing out half of these subsidies, say by retaining subsidies relating to the PDS, which benefit the poor more than other subsidies, it will generate savings worth at least 2% of GDP.
- If the Centre and the states can also agree on a relatively flat tax structure without exemptions for the goods and services tax (GST), this will help generate additional tax revenues worth 2.7% of GDP, according to the calculations of the Subramanian committee on GST.
- Additionally, the plan to phase out corporate tax exemptions could fetch the government another 0.5% of GDP. The total savings worth 5.2% of GDP would therefore be roughly equal to what is required for the limited UBI worth Rs450 per person per month.
What should be the acceptable level of UBI?
As per few experts, it may not be necessary for the UBI to match the poverty line. Various studies have shown that even much lower levels of income transfer could materially improve the lives of the poor.
- A pilot study conducted by UNICEF and the Self Employed Women’s Association (SEWA) in a few villages in Madhya Pradesh in 2011 showed that a monthly unconditional grant of Rs300 to each adult and Rs150 to each child led to considerable improvement in their lives and reduced distress driven out-migration.
- Adjusting that amount for inflation, adopting an equivalent UBI amounting to around Rs450 per person per month in 2015-16 prices would cost 5.1% of GDP. This calculation is based on a universal entitlement of Rs 450 for adults and children as a variable UBI (with different entitlements) would add an additional function for the bureaucracy.
- Hence, the proposed UBI would amount to Rs1,800 per month for a family of four, in 2015-16 prices.
Arguments in favour of UBI.:
- For the purpose of fighting inequality.
- To tackle slow wage growth and aid financial security.
- To tackle increasing fears of advancing automation due to globalisation and immigrants competing for jobs which are meant for the local population.
- To reduce the gap between haves and have nots.
- The govt. can do away with many subsidies then.
- Basic income acts as a kind of a social security for the weak, unwell or physically challenged.
- Also for people who are skilled and have employment but are not able to receive quality wages due to lack of opportunities or other reasons, basic minimum income acts as a supplement to the existing economic resources
- The nutrition intake of those suffering from povertycan rise. Data provides that in M.P.consumption of pulses, fresh vegetables and meat was up by huge number of 1,000%, 888% and 600% respectively.
- People able to spend more on healthcare and as a result, incidence of illness can reduce.
- Among other social indicators education can also witness progress in terms of enrolment and attendance, especially among female students.
- With this confirmed source of income, indebtedness of people can decrease and the capacity to save increased, hence placing them in a better financial position.
Arguments against UBI
- Any plan to replace food related subsidies has to contend with the implications of such a move on food security of the country. Also, whether farmers will continue to produce enough foodgrains in the absence of price incentives remains a big question.
- UBI is also inevitably linked with government withdrawal from other channels of public service delivery. However, withdrawal of government support from public goods and necessities like health, education is not justifiable as the weaker section have varied needs which cannot be met simply by transferring money.
- It is also argued that unconditional cash transfers might raise wages due to the decline in the supply of casual labourers. There is also question of whether a shift towards it should be a substitute for all existing subsidies or whether it should complement the existing ones.
- The other big challenge relates to co-ordination between state and central governments. Any plan to phase out subsidies and tax exemptions (relating to the GST) will require an extraordinary degree of co-operation between the states and the Centre.
- Also, any pre-specified commitment by the government such as an inflation-indexed UBI worth Rs450 per person could generate fiscal stress during an economic downturn.
There is a tough choice whether to give fish or provide a fishing rod to the hungry.
In Indian context it is a mix of both, Provide the fishfor some time to keep his body and soul together and simultaneously make him skilful and competent enough to fish himself in the long run.