Economy

Analysis: Universal Basic Income is back in the spotlight — here are the pros and cons of the much debated topic

Updated : January 18, 2019 02:07 PM IST

The reports suggest that UBI is being actively explored by the NDA government. Pilots are being run to check if the scheme can bear fruit.

In order to relieve farmers from their distress, it was reported that the Modi government is mulling the Universal Basic Income scheme for the sector.

Pragmatic problems aside, the debate continues to be between the contradicting ideologies.

In order to provide relief to farmers and with an eye on the general elections due by May, the Narendra Modi government is reportedly mulling a Universal Basic Income (UBI) scheme for the agri sector.

The reports suggest that UBI is being actively explored by the NDA government. Pilots are being run to check if the scheme can bear fruit.

The idea is hardly new.

The Economic Survey 2016-17, which was released (by custom) a day before that year’s Budget, supported UBI in India. However, former NITI Aayog vice-chairman Arvind Panagariya stated a practical problem. He points out that India will not be able to fund the scheme.

According to the theory, UBI is a social welfare scheme. The government will transfer a fixed amount of cash to all the citizens of the country, aiming to raise their standard of living.

In an interview with The Indian Express, Panagariya said, “At the current level of income and our needs for investment in health, education, infrastructure and defence, we simply do not have the necessary fiscal resources to transfer a reasonable basic income to 130 crore Indians.”

If one takes into consideration the International Monetary Fund-quoted price, Rs 2,600, which takes 2011-2012 prices – is it enough for the poor to live a comfortable life in a month despite the rise in inflation?

Pragmatic problems aside, the debate continues to be between the contradicting ideologies.

The Economic Survey itself, mentions the for and against arguments of the concept - which have led to heated debates between experts.

Here's a look at the pointers which have led to debates:

The definition can be looked at in two contradicting perspectives. The pro-UBI group believes that the scheme can eradicate poverty, generate employment and boost the expenditure which will, in turn, lift economic growth.

On the flipside, the UBI critics believe that the scheme will lead to a wastage of government funds, fail to generate employment because people will be discouraged to work and will eventually resort to bad habits, like alcohol.

Pulki Mittal, an Economics Professor pursuing her own venture, argues that the implementation of UBI will lead to a vicious cycle. She explains, "It's (UBI) is like an unemployment benefit which should not be there because it'll become a vicious cycle."

The vicious cycle, she explains, that once the free cash is infused in the economy, people will be discouraged to work because the primary reason to earn is being taken care of. Once the money is coming without hard work, the productive labour will resort to alcohol, among other bad habits, defeating the purpose of implementing UBI - bringing a wholesome economic development.

However, Jawaharlal Nehru University Economics Professor Jayati Ghosh argues, "Generating more employment is the actual problem in India and not people resorting to alcohol or giving up their work." She believes that UBI will help people save more money and make accurate decisions in while spending.

Economics Professor at London School of Economics, Maitreesh Ghatak, says, "Evidence from low- and middle-income countries suggest that, on average, cash transfers to the poor do not cause them to work less or spend their money on inessential consumption." He supports his statement by quoting the results of the Madhya Pradesh pilot in India, among others.

Apart from what the UBI can result in, another hurdle in implementing UBI was pointed out by NITI Aayog CEO Amitabh Kant in January, 2017, at World Economic Forum in Davos.

“In the Indian context, a universal basic income has to be examined in the context of the fact that you already have a rural employment guarantee scheme, which is being implemented but has huge leakages. There is a public distribution system being implemented, but again is riddled with corruption,” he told CNBC-TV18.

He suggests, however, that if UBI is to be tested, then the government can try interest-free loans to the poor, for three-four years. The poor will then be required to repay the loans.

On implementing UBI, the above-mentioned economists state the same reason - India's poverty line is flawed. However, their viewpoints differed.

When asked Mittal on what the government can do eradicate poverty, she said that measures should be taken to "rehabilitate the poor, and take it (poverty) out from the roots."

She explains that the government should first rework and correct their fundamental norms and help the lower income groups (LIGs) change their mindset, that is, help them understand that they are capable of earning and raise their standard of living. This, she points, is the most fundamental issue and will help to bring up the LIGs once and for all.

Ghosh, however, argues that the poverty line is flawed because it excludes many groups who are in need of the social welfare schemes. She says once the poverty line is fixed, the social services should be expanded further. The prevalent social schemes should run alongside UBI. She argues that the poor are in need of support from the government and that this is one of the prime methods to lift the LIGs of our country.

Chief Economic Adviser Arvind Subramanian in 2016, said that India should nevertheless test its waters. He said that the scheme can run in the poverty-stricken regions rather than make it universal.

But, when asked the economists if UBI should be only for the LIGs, Ghosh and Ghatak denied saying that the scheme should be universal and not specifically for the poor, but point that the poverty line should be rectified first.

Due to these arguments and the prevalent issues, UBI continues to be debated and the opposing parties have never been able to reach a consensus.

Analysis: Universal Basic Income is back in the spotlight — here are the pros and cons of the much debated topic

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