Universal Basic Income, Need, Advantages and Disadvantages

Context: The concept of Universal Basic Income (UBI) has gained momentum globally, especially as automation and AI-driven technological advancements have led to jobless growth.

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.

Advantages of Universal Basic Income (UBI)

• Improved Targeting of the Poor: UBI eliminates exclusion errors, ensuring no poor citizen is left out of welfare benefits.
  • It ensures marginalised communities have access to financial support, improving social equity.
• Flexibility in Expenditure: Beneficiaries have the freedom to decide how to spend the money based on their needs.
  • This empowers individuals to manage their finances independently, respecting their personal choices.
• Insurance Against Shocks: UBI serves as a safety net, protecting people from financial shocks like unemployment or health crises.
  • It helps reduce poverty and vulnerability, offering economic security during tough times.
• Financial Inclusion: UBI can increase access to banking and credit for financially insecure individuals.
  • The use of digital infrastructure (Jan-Dhan, Aadhaar, Mobile) can improve transparency and efficiency.
• Minimum Standard of Living: UBI ensures basic capabilities like health, education, and a stable income, allowing people to afford better-quality goods.
• Administrative Efficiency: UBI can streamline government welfare by reducing the complexity of multiple schemes, lowering administrative costs.

Disadvantages of Universal Basic Income (UBI)

• UBI might reduce work motivation, as people may rely on guaranteed income and quit their jobs, leading to reduced economic productivity.
  • Scarcity of cheap labour could drive up prices, making basic goods harder to afford, impacting economic stability.
• It could contribute to inflationary pressures by increasing overall demand for goods and services without a corresponding rise in supply, leading to higher prices..
• In some households, men may control the spending of UBI, potentially leading to misuse or unequal benefits for women.
• UBI is universal, meaning even the wealthy receive it, which could lead to objections and concerns about the fair use of state resources.

Need for UBI in India

• Rising Unemployment: According to the ILO, 83% of India’s unemployed population is youth.
• Growing Inequality: India’s Gini coefficient, a measure of income inequality, has been increasing over the years.
• Jobless Growth: India’s economy has experienced growth, but this has not translated into commensurate job creation.
• Automation and AI: Advancements in automation and AI are leading to job displacement in various sectors.
• Inadequate Social Safety Nets: India’s existing social safety nets are often insufficient to provide adequate support to vulnerable populations.

Arguments Against UBI

• Dignity of Work: Providing income without work may lead to societal alienation, as individuals without employment might be perceived negatively.
• Challenges of Capitalism: The inability of the current economic system to generate sufficient employment is a key issue.
  • In this model, income is typically tied to work, and UBI challenges this by providing income regardless of employment, which could be seen as a failure of the system to offer adequate jobs.
• Labour Market Distortion: UBI may discourage formal employment, particularly in economies where informal labour is prevalent, leading to a further decline in job participation rates.
• Labour Market Adjustments: Technological advancements such as automation and AI may lead to job losses, but the labour market has the potential to adjust, with skill development being a more sustainable solution.

Arguments For UBI

• Addressing Unemployment and Economic Demand: UBI could inject much-needed income into the economy, boosting demand and stimulating growth in situations where unemployment has led to a contraction in market demand.
• Dealing with Automation and Inequality: UBI could help mitigate the effects of “jobless growth” caused by automation and digital industries, which have led to rising inequality and job losses.
• Financial Support for Self-Employed Workers: As more individuals turn to low-income self-employment due to a lack of job opportunities, UBI could provide a safety net, helping to bridge the income gap.

Challenges of Implementing UBI in India

• Size of Informal Economy: With around 80-90% of the workforce engaged in informal, cash-based activities, implementing UBI in such an unregulated economy presents major challenges.
• Financial Burden: Providing UBI to over 1.4 billion citizens would impose a heavy financial strain on the government, requiring robust taxation and fiscal management.
• Targeting the Vulnerable: Ensuring that UBI effectively reaches the most vulnerable in India’s diverse population would require sophisticated administrative systems and accurate data infrastructure to prevent misuse.
• Impact on Labour Market: UBI could potentially discourage participation in formal employment, particularly in a country with a large informal sector, necessitating careful design to complement, not replace, formal job opportunities.
• Regional Disparities: Economic disparities between India’s regions suggest that a uniform UBI might not suit all areas, requiring adjustments to fit regional cost-of-living differences.
• Cost of Living Variation: The varying cost of living across India could make a fixed UBI insufficient in high-cost regions and excessive in low-cost areas, highlighting the need for region-specific UBI amounts.
• Administrative Infrastructure: Implementing UBI would demand a strong administrative system, including reliable identification, banking access, and mechanisms to prevent fraud and corruption.
• Public Acceptance: UBI’s success depends on public understanding and acceptance, requiring education about its benefits and trade-offs, particularly regarding the potential replacement of other subsidies.

Universal Basic Income: International Case Studies

Policy Recommendations

• Prioritise Employment Generation: Focus on creating jobs in labour-intensive sectors such as healthcare, education, and rural development, which can generate mass employment.
• Invest in Skill Development: Implement policies that bridge the skills gap between the workforce and the demands of industries, particularly in light of automation and AI.
• Strengthen Social Safety Nets: Ensure that existing social safety nets are expanded and made more accessible across regions, helping to reduce inequality and provide financial security.
• Raise Direct Taxes: Consider raising the direct tax-to-GDP ratio to increase government revenues, which could help fund UBI or other welfare programs.
• Focus on Existing Safety Nets: Before implementing UBI, it’s important to address the uneven distribution of existing social safety nets across regions.
• Reassess Industrial Incentive Programs: Review production-linked incentive schemes to ensure they contribute effectively to job creation in key industries.

Sharing is caring!