Modified UBI Policy may be more Feasible

What is Meant by Universal Basic Income (UBI)?

• It is a form of guaranteed income where every citizen or resident of a country is provided with a fixed, unconditional amount of money on a regular basis, regardless of any other income they may earn.
• The 2016-17 Economic Survey recommended exploring UBI as a policy to replace inefficient welfare schemes.
• The report suggested the JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure would enable Direct Benefit Transfers (DBTs) to beneficiary accounts.

Challenges or Criticism of UBI

• Financial Feasibility: UBI proposals often suggest transfers amounting to 5% to 11% of GDP, which is a significant burden on India’s fiscal resources.
  • Implementing such large-scale schemes may require cutting other anti-poverty programs or drastically raising taxes to fund the initiative.
• Targeting vs. Universality: Critics argue that universal transfers would also go to the wealthy, who don’t need financial assistance.
  • This raises concerns about the efficiency of using limited resources to provide benefits to those who are not vulnerable.
• Opportunity Costs: UBI may take away funds from more targeted programs that directly address issues like employment growth or poverty alleviation.
  • Critics argue that investing in programs that create jobs or stimulate mass consumption might be a better use of resources in a developing country like India.
• Logistical and Implementation Challenges: Although India has developed JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure, issues like inclusion and exclusion errors, Aadhaar verification problems, network failures, and bank rejections remain persistent challenges.
  • These could hinder the smooth delivery of UBI benefits.
• Dependency and Work Disincentives: There is concern that a UBI might create a disincentive to work, particularly if people receive guaranteed income without any conditions, leading to reduced labour force participation over time.

State and Central Schemes: Precursor to UBI

• India has already implemented income transfer schemes, notably in agriculture:
  • Rythu Bandhu Scheme (RBS): Launched in Telangana in 2018, provided ₹4,000 per acre to farmers.
  • KALIA (Krushak Assistance for Livelihood and Income Augmentation): Odisha’s initiative for farmers.
  • Pradhan Mantri Kisan Samman Nidhi Yojana (PM-KISAN): Launched in 2018-19, initially provided ₹6,000 per year to small landholding farmers and expanded to cover all farmers. The scheme aimed to reach 10 crore households by 2020-21, costing ₹75,000 crore (roughly 4% of GDP).

Modified UBI Proposals

• Limited Universal Transfers: A proposal developed by the author and economist Karthik Muralidharan suggests a modest universal income transfer of about ₹144 per month per person or ₹500 per household.
  • This is pegged at 1% of GDP per capita, much more feasible than full UBI proposals requiring 3.5%-11% of GDP.
• Expand Existing Schemes: The PM-KISAN scheme provides an example of a targeted scheme that could be modified.
  • By doubling its budget and making it universal, it could cover not only farmers but also landless labourers who are often poorer, thereby increasing its reach.
• Complementing Existing Programs: Instead of replacing all social welfare programs, the modified UBI can supplement existing programs like MGNREGS.
  • Example: MGNREGS provides 100 days of employment, but a modified UBI could extend coverage to groups like the elderly and disabled, who are unable to work and might not benefit from employment programs.
• Cost Control through Modesty: By keeping the transfer amount modest (₹144 per person), the modified UBI ensures that the program remains financially sustainable while still providing a meaningful safety net.
  • The relatively small transfer amount is significant in relation to the Tendulkar poverty line (₹1,500 per month in rural areas, ₹1,850 in urban areas).
• Reduced Administrative Costs: The universality of the scheme helps reduce targeting costs, bureaucratic delays, and errors associated with targeted programs.
  • It also reduces the risk of corruption and leakages by minimising the need for intermediaries in the delivery system.
• Integration of Income and In-Kind Transfers: A modified UBI can be integrated with in-kind transfers like the Public Distribution System (PDS), ensuring a holistic safety net.
• The COVID-19 pandemic underscored the importance of both income transfers and food access, showing that they are complementary.

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