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Economic Survey 2017 Series-4: UNIVERSAL BASIC INCOME

Universal Basic Income has three components:

  1. Universality
  2. Unconditionality
  3. Agency (by providing support in the form of cash transfers to respect, not to dictate the recipients).

Objectives of UBI:

  1. To achieve social justice: minimum income assures guarantee of a minimum decent life.
  2. To promote productive economy.
  3. To assure guaranteed descent living standards.
  4. To promote liberty because it is anti-paternalistic.
  5. To widen the flexibility in labor market.
  6. To promote the equality by reducing poverty. It presents the fastest way of reducing poverty.
  7. To promote the efficiency by reducing waste in government transforms.

Why we need Agency in place of present welfare schemes?

Because present welfare schemes

  1. Treat poor as objects of government policy.
  2. Inflict an indignity upon the poor by assuming that they can’t take economic decisions relevant to their lives.

And so, UBI assures a dignified way of leading and progressive economic efforts of individuals, so that they become the director of their own life.

Why UBI?

  1. Individuals are trapped in poverty for different reasons.
  2. They have to face different risk. A particular scheme reduces a particular risk, which may suit only some of the poor.
  3. UBI takes individual and not the household as the unit of beneficiary, so it enhances agency especially women within households.
  4. In an environment of uncertain unemployment, UBI which guarantees a minimum living standard will bring certainty of life.
  5. UBI also open up new possibilities of labor market.
  6. It will increase bargaining power of labor force.
  7. In the era of non-delivery of government scheme or their leakages, UBI provides a mechanism to increase administrative efficiency.

Arguments against UBI:

  1. It reduces incentive to work but this will be true only when human works only for necessity or they do not want to improve their standard of living.
  2. It will detach income from unemployment.
  3. It will break need based social-structure.
  4. It will enhance spending: male members may spend this additional income for wasteful activities.
  5. It will reduce labor supply. People may become lazy and opt out of labor market.
  6. Gender disparity will increase. Men are likely to have greater access over spending of UBI.
  7. It will put too much stress on the banking system.
  8. It may enhance financial burden on government. Moreover in case of failure, it will be difficult for government to withdraw it.
  9. It will be against the basis of “social justice” as it is universal, equal for all-poor as well as rich.
  10. It will increase cash flow with public, instead of food and other goods. This may expose the poor to more market risk.
  11. High cost: but it will replace subsidies on LPG, railways, ATF, fertilizers, Tax expansions, Mudrabank, welfare schemes, etc.

Arguments in favors of UBI:

  1. Poverty and vulnerability will be reduced.
  2. It treats beneficiaries as agents and entrusts faith in them that they will take economic decision to optimize their utilities.
  3. As all individuals are targeted, exclusion of poor is zero.
  4. It provides insurance against all shorts: health, income etc.
  5. It will improve financial inclusion.
  6. It will reduce administrative burden on the state as it will replace of number of government schemes-PMAY, SSA, MDM, PMGSY, MNREGS etc.(largest central schemes-PDS, MNREGS, SSA, MDM, PMGSY, PMAY & SBM).
  7. More profitable for banks.
  8. World Development Report 2015 argues that individual living in poverty line
  9. Are preoccupide with daily hassles and this result in depletion of cognitive resources required for important decision.
  10. Have low self image that tends to blunt aspirations.
  11. Norms that may require investments in social capital to the detriment of private opportunities.

How to make it more effective?

  1. Universal to quasi-universal
  2. Define non-deserving based on ownership of key assets like automobiles.
  3. Adopt “Give it up” scheme.
  4. Public display of the names of beneficiaries of UBI.
  5. First start for women and for urban people
  6. Introduce it in phased manner.

Prerequisites of UBI:

  1. JAM (PMJDY, Aadhar and Mobile)
  2. Financial inclusion
  3. People’s awareness
  4. Better centre-state negotiation.
  5. Government’s determination
  6. Efficient service system like insurance, medical and other life supporting systems
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