Will Jaitely Introduce Universal Basic Income in Budget?

Mon, 16 Jan Pre-Open

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After the disruption of the demonetisation, the central government is expected to play some trump cards in the Union Budget. The budget is the only hope for revival in the economy after the demonetisation shock.

In addition to the tax limits, there are more expectations build in for the budget. One of the interesting concept is Universal Basic Income (UBI). It is generally used for social welfare schemes.

Simply put, a UBI is a sum of money provided by the State to all citizens to take care of the bare necessities of life. Mind you, this would work on the same premises of the Direct Benefit Transfer Scheme. The measure is intended to provide a safety net preventing any citizen from sinking below a basic minimum standard of living or poverty line.

The question - Why UBI?

It is widely seen that there is always a big disconnect between the intent and application. And specially when it comes to social welfare policies there are numerous loopholes. For instance, public distribution system (PDS) is a very well-intended, but it gets distorted as far as application is concerned.

UBI would help avoid most of these problems as minimum deposits at regular intervals in bank accounts of every citizen would do away with the inefficiency and corruption that mars the current social welfare infrastructure.

However, implementation of a UBI in a country as vast as India is no mean task. Reaching out to all of the potential beneficiaries of this scheme would mean an overhaul of the existing social welfare infrastructure and not to mention additional financial burden on the exchequer.

Arguments against UBI of course include the cost factor in providing a subsistence income for those who have no need for it, particularly the rich and the middle class.

While in countries like Finland - where UBI is currently being experimented - there is a relative homogeneity among the demographic, with all of the classes grappling with a post industrialization slowdown in an already prosperous society. It may not be feasible in a country with a demographic as varied as India.

Implementation of UBI in India would cost the exchequer as much as 11% of the nation's GDP.

Currently the government spends about 4% of the GDP on welfare, healthcare and education expenses.

UBI may also discourage people from working and even lead to high rates of inflation due to an increased money supply in the system.

A guaranteed universal basic income for all sounds like a good idea, especially for a country with a significant amount of its population below the poverty line.

However, implementation of the same is an uphill task with fundamental, structural and financial challenges. And even after a successful implementation, it carries no guarantee that it will help lift majority of India's poor out of the poverty trap.

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