Article by Aruma Khan from Department of Economics, JAMIA MILLIA ISLAMIA
“Put money in the hands of people!”
As the devastating COVID-19 pandemic hit India, the country went into sudden lockdowns, the Indian economy suffered a severe demand shock, and GDP contracted. Amid the chaos, several economists repeatedly proposed unconditionally putting money in people’s hands. Abhijit Banerjee, a Nobel laureate, was one of them.
The basic idea was to provide money to the poorest 60% of the population, enough to meet their basic needs while stimulating aggregate demand. This solution echoed the logic of the much-debated unconditional cash transfers for income redistribution, i.e., the Universal Basic Income.
The pandemic reignited a long-running debate about the viability of Universal Basic Income (UBI) globally. UBI is defined as a total fixed cash transfer payment made to every citizen or resident regularly by the government or other public institution. It asserts that society should prioritize meeting all its members’ most basic survival needs.
UBI is based on the principles of universality, individuality, and unconditionality. With the onset of the pandemic, the concept of UBI has become less implausible, particularly in the Indian context, where the majority of the workforce is employed in the informal sector.
Arguments ‘for’ and ‘against’ Universal Basic Income
The credible arguments for and against UBI make this topic worth studying. Proponents of universal basic income argue that it alleviates the symptoms, if not the full causes of poverty. It provides enough financial assistance to lift most people out of absolute poverty.
Many workers have lost their jobs due to digitalization and automation. This is especially problematic for marginalized workers who cannot afford to invest in training and skill enhancement programs to keep up with technological advancements.
This technology-induced job loss exacerbates and widens income inequality. UBI will bridge this gap, allowing workers to invest in health and education’s most basic human resource development indicators. It will combine several targeted schemes and policies into a single entity.
In terms of desirable social outcomes, UBI would directly shift purchasing power into the hands of unpaid household workers, most of whom are women. It would give women more financial security and autonomy.
People will gain a sense of agency over their lives due to UBI. Furthermore, having some money in their pockets gives workers more bargaining power when demanding healthy working conditions from their employers.
Critics of UBI make several compelling arguments as well. UBI imposes significant financial strain, particularly in overpopulated developing economies. It is further argued that universal basic income will discourage people from working, which is a primary source of socialization and contributes to economic growth.
Women’s labor-force participation may fall even further. It would require a well-functioning taxation system as a prerequisite if it were to be funded through taxation. UBI would also necessitate complete information on all citizens’ income and wealth status.
The targeted welfare schemes are only for the most vulnerable and needy members of society. Nonetheless, UBI, by definition, is universal and unconditional. Thus, it may channel resources away from those in need and toward those who do not.
This shift is relatively inefficient. Thus, it is classified as a leakage. UBI may increase the number of unskilled migrants seeking to flee a life of extreme poverty in their home country. However, research indicates that this is an unlikely outcome because moving to another country involves many factors other than the benefits offered.
Economic Survey 2016-17
The pandemic is not the first time that basic income has sparked debate in India. The then-Finance Minister, Arun Jaitley, proposed a quasi-universal basic income as a long-term solution to poverty alleviation in his Economic Survey 2016-17.
The survey suggests if the top well-off quartile is excluded from the program, UBI with 75 percent universality has the potential to reduce poverty to 0.5 percent of the population at the cost of 4-5 percent of GDP. The amount estimated to lift the poor above the Tendulkar poverty line was Rs 7,620 per year.
According to the 2016-17 budget, 5% of GDP was allocated to funding 950 central sector and centrally sponsored sub-schemes. Given the high cost of UBI, it would only be a viable option if it replaced existing welfare programs. In practice, Universal Basic Income has a lower distortionary impact on the economy than other welfare programs.
A few critical prerequisites for the successful implementation of UBI were mentioned. First and foremost, a functioning JAM (Jan Dhan, Aadhar, and Mobile) system ensures financial inclusion. Second, the federal spirit of Centre-state bargains over UBI funding.
MP Pilot Study
India conducted one of the most visible pilots utilizing Randomized Control Trial (RCT) technology in the early 2010s. The goal of these assessments was to determine the impact of a basic income on living conditions such as health, nutrition, education, sanitation, etc. It aimed to track changes in economic activities such as production, consumption, saving, debt, and their impact on social aspects such as women’s status and decision-making.
The study was conducted in Madhya Pradesh by SEWA (Self Employed Women’s Association) Bharat, and SEWA MP. UNICEF funded it. The Principal Investigator was Prof. Guy Standing. In Indore, eight villages were chosen at random. For 17 months, all men and women received a monthly cash transfer.
A control group of 12 villages that were similar but did not receive the same income was formed. Several evaluation surveys were carried out. The findings revealed that basic income reduced household indebtedness. As a result, they could access better medical facilities, resulting in near-universal financial inclusion.
Another small-scale pilot was conducted in Western Delhi, with 450 low-income households chosen as samples. According to the findings of the evaluation surveys, the basic income provided them with access to better sanitation, cleaner fuel, and non-cereal consumption.
Although no country has yet implemented UBI in its entirety, there have been numerous extensive experiments and small-scale pilots worldwide. Some of them are still on the run. In 2011, the Islamic Republic of Iran became one of the first countries to implement a national basic income program. Surprisingly, the criticism that UBI would act as a “disincentive to work” did not materialize. This claim was not supported by empirical evidence.
Different countries interpret the concept of basic income differently. Despite the promising results of the pilots in India, it is argued that implementing UBI will be a difficult task. Because Scandinavian countries have a homogeneous population, a well-organized formal sector, and guaranteed employment, the transition to UBI will be easier. However, India is rising, with a large and diverse population and a massive, unorganized informal sector.
Soon after the Economic Survey was tabled in Parliament, Dr. Arvind Subrananian, the Finance Ministry’s then-chief economic adviser, clarified, “The survey does not advocate universal basic income for immediate implementation, but the time is ripe for deliberation.” Right now, the country may not be fully prepared to accept UBI.
Nonetheless, it can help to strengthen the system and institutions needed for a smooth transition and implementation of UBI. It would necessitate an agreement between the government and the people. It can only be implemented gradually and methodically with the cooperation of state governments and civil society.
Article Summary: This article discusses the Universal Basic Income and how it came to be a saving grace for so many people during the Covid-19 pandemic. Further, both ‘for’ and ‘against’ UBI arguments are highlighted and a very neutral viewpoint. Two examples from the past support the need for UBI during the pandemic, namely the Economic Survey (2016-17) and the MP Pilot Study from the early 2010s. To emphasize this point, the quasi-universal basic income, proposed as a long-term solution to poverty alleviation, is discussed. Finally, it is concluded that the UBI can only be implemented gradually and methodically with the cooperation of state governments and civil society.
(Aruma Khan is an Economics student at Jamia Millia Islamia, Delhi. The views expressed are personal and they do not purport to reflect the opinions or views of GAEE or its members.)