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Universal Basic Income (UBI)

While Modi Government is rumored to implement UBI before the next general elections, Congress’s promise to bring UBI after forming a government at central level shows that Universal basic Income is being targeted everywhere. UBI is not a new concept and it falls back to the year 1516 when a philosopher Thomas More proposed a similar idea in one of his books Utopia. This concept has been a topic to several books, academics and panel discussions. A UBI, according to the Economic Survey, has three key characteristics: every citizen receives cash payments, these payments are unconditional, and each individual is free to spend these funds as they wish.

UNIVERSAL BASIC INCOME

Recently, Sikkim became the first state to implement the Universal Basic income. In this article we will understand the concept of UBI and its pro & cons. Most of the content is taken from Economic Survey. For more detail you can access the relevant chapter of Economic Survey by clicking here.

Three basic components:

universal basic income

Backed by the few of the biggest entrepreneurs of the decade like Mark Zuckerberg, Elon Musk and Senator Bernie Sanders the idea of Universal basic income trial suggests that it could eliminate life of poverty and humiliation to some extent. While few of the countries such as Kenya, Canada, Spain, Finland and Switzerland have already taken a step forward towards the mission, it is being suggested that one of the largest democratic in the world i.e. India will also soon announce a major step towards the UBI Scheme. It has even been tested in few of the US Cities.

Countries that have already implemented UBI

  • Finland: Finland stays on top list when it comes to countries trying to adopt UBI. Recently the government o Finland announced a two-year pilot scheme that will pay a basic income of 560 Euros to 2000 unemployed citizens of the country per month. The center-right Finnish government is spending 20 million euros ($21.2 million) on the experiment.
  • Italy: In Italy an active measure of income assistance was taken by the government similar to Universal basic income. Since a new policy was unveiled a year-and-a-half ago, citizens and foreign residents in the small northeastern Italian region of Friuli-Venezia Giulia have had the right to financial assistance ranging from 70 to 550 euros ($75 to $555) per month over two years. Out of a population of 1.2 million, 32,000 applied for assistance, which is only given as long as recipients can prove they are seeking employment.
  • Netherlands: The Dutch country is also experimenting with the idea of Universal basic income as a part of their project called “Weten Wat Werkt”, or “Know What Works,”. The Dutch city of Utrecht began an experiment in basic income at the beginning of this year by providing 250 citizens receiving unemployment assistance with a guaranteed monthly income of 960 euros per month. Other Dutch cities are also aiming to implement the same in some time soon.
  • Kenya: Kenya had a different way and vision when it came to UBI. Give directly is the charity in Kenya that is experimenting with the effects of UBI by dividing the receivers into 4 different categories.

Comparison group: 100 villages will not receive payments.

Long-term UBI: 44 villages will receive payments sufficient to cover basic needs (about US$0.75 per adult per day) for 12 years.

Short-term UBI: 80 villages will receive payments sufficient to cover basic needs (about US$0.75 per adult per day) for two years.

Lump sum UBI: 71 villages will receive one-time payments equivalent to the short-term UBI transfers (about US$500 per adult).

The first follow-up survey will take place in 2019, and researchers plan to conduct ongoing follow-up surveys every 3 to 5 years.

Countries Failing to implement UBI

  • Canada: Canada was among the first countries to implement universal basic income. The program started in 2017 and was expected to keep going till the next three years. It provided a basic income to 4,000 low-income people. Program participants who earned less than $34,000 Canadian annually ($26,000 in U.S. currency) received up to $17,000 Canadian annually. Couples making under $48,000 Canadian received up to $24,000 Canadian, minus 50% of earned income.

Unfortunately, this program was abruptly scrapped off as the ministry officials felt it didn’t help residents become “independent contributors to the economy”. One researcher involved with the program, however, said there wasn’t enough data to make this statement.

  • Last year, Switzerland voted on UBI and rejected the proposal to transfer 2,500 Swiss francs per month to every adult citizen and long-term resident. The fiscal implication was the main reason for rejection of the proposal in Switzerland.

universal basic income india

universal basic income definition

*Source : Economic Survey

UBI in India- Effects on Social Schemes

Both the decline in poverty and vulnerability is calculated assuming status quo. More specifically, the assumption is that current welfare schemes and subsidies provided by the government continue to remain the same and the UBI is a contribution made in addition to it. Therefore, insofar as the UBI comes in place of other welfare schemes, the poverty reduction estimates may be an overestimate.

These estimates view a UBI solely as a source of consumption but in reality, it may also be used as a means of asset accumulation which in turn may lead to higher incomes and consumption. Hence, these estimates may be an underestimate of the true effect of UBI on poverty and vulnerability.

As a result of beneficiaries, the number of completed works has increased from 25-30 lakhs (yearly average since inception) to 48 lakhs in the current year. 70 percent of these works is in Agriculture & Allied activities (an increase from 50 percent in 2013-14). Additionally, participation of women in MGNREGS increased from 40 percent in 2006-2007 to 56 percent in 2016-17.

Sikkim being the first state to roll out universal basic income scheme, it is a matter of talk that will UBI affect the previous social schemes or will be a new scheme itself. Being hailed as a feasible option in contrast to different welfare plans and projects the aspiring plan would profit the whole populace of 7 lakh individuals in the state.

It’s not the selling of the surplus power is the only option before the government, in addition to that state government also has the plans to restructure some social schemes and the “skewed” tax structure as a way out to find more money. The government likewise ponders producing cash by leveraging tourists and increase earnings through tourism so as to make an extra asset to execute the plan.

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. 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. Eg. 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
  • With food security universalization by National Food Security Act and PDS infrastructure, subsidy to bottom 40% has increased substantially since 2011-12.
  • Due to improvements in MNREGA like digitizing job cards, geotagiing assets etc. there was seen an increase in women participation

Other Programs in India

The purpose of the Madhya Pradesh Unconditional Cash Transfers Project (MPUCTP) is to test the potential for cash transfers to address vulnerabilities that low-income Indians face. The unconditional cash transfer is a form of a universal basic income, as it provides a set allowance to all civilians in a village every month without any restrictions on what the money can be used for. The Indian government in partnership with SEWA and the Madhya Pradesh state government, carried out a controlled trial. This experiment gave 100 randomly selected households 1,000 rupees per month.

Conclusion

Research indicates that in order to implement the UBI, existing welfare programs would have to be terminated to free up resources.This raises questions, especially about the Indian government’s large programs such as the Food Subsidy or Public Distribution System (PDS) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) which would have to be stopped for the UBI to be implemented. Current social welfare schemes cost India about 3.7% of GDP, but UBI is expected to cost 4.9% of GDP. There are still many ongoing arguments for, against and around UBI in India.

The fear that most people would stop working seems overstated and largely unfounded. Opinion surveys and experiments provide evidence that only a fraction of people would choose not to work at all. With ongoing research and augmenting the statistics of the experiments it is found that UBI could be a major part of India’s growth in the near future.

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