The Economics of a Universal Basic Income

The age old concept of Universal Basic Income or UBI (for those who love abbreviations) has recently started gaining ears in Political discussions. With Governments across the Globe brainstorming antidotes of poverty, UBI is a concept worth serious deliberation. A recent revelation by Hillary Clinton, where provision of Universal Basic Income for all Americans was one of her never released Election Campaign proposals, it has further led to a justification of legitimacy of this discourse.

What is Universal Basic Income?  Basic income is a form of social security, in which all citizens or residents of a country receive a regular, unconditional sum of money, either from a government or some other public institution, independent of any other income. The unconditional sum of money which leads to partial fulfilment of basic needs of an individual needed to satisfy the Poverty line criterion is called Partial UBI and a sum which is more than enough to fulfil the basic needs is called full UBI. Reactions in Indian Context: In context of India, the concept has received mixed reactions with their being substantial counterarguments and explanations from both sides. Advocates of this philosophy say that in India it will not only serve as an antidote to poverty but will also serve as a path leading to autonomy of specific sections of society (such as adult women, a major chunk of which does not earn) and will serve as a ray of hope for those who want to come out of drudged businesses, prostitution etc. Those who dispose-off this idea say that a substantial amount of fiscal transfers ensure proper redistribution of income within the society. These transfers are in the form of Welfare programs, several explicit and implicit subsidies etc. These programs and subsidies are not only from central but state governments also.  A study conducted by UNICEF and the Self Employed Women’s Association (SEWA) in a few villages in Madhya Pradesh in 2011 showed that a UBI of Rs300 to each adult and Rs150 to each child will lead to improvement in their lives and will reduce distress.Adjusting that amount for inflation, adopting an equivalent UBI amounting to around Rs450 per person per month in 2015-16 prices would cost 5.1% of GDP. This amount is a significant proportion of our annual budget and creating a separate provision for it would aggravate fiscal burden on the state. What is therefore needed is a truncation of all existing welfare programs and restructuring the concept of societal welfare in our country. With a multitude of other economic activities associated with them truncation of these welfare programs may have other serious undesirable economic outcomes. In India we have an explicit manifestation of the ‘The Leaky Bucket Principle’, according to which a small proportion of what is dispensed reaches the needy. The menace of a corrupted Bureaucracy is the biggest culprit in this regard. A very small proportion of what is meant for the poor, actually reaches the poor. These statistics as released in The Economic Survey of India 2015-16, indicate a substantial transfer of funds for poor away from the poor. Poor refer to the bottom 30 per cent of the population and the rest (the top 70 per cent) are deemed to be non-poor Source: Economic Survey 2015-16 (chapter 6) In my opinion a clear identification of RECEIVERS and a direct transfer of APPROPRIATE funds is what is needed to resolve this problem.Identification of appropriate receivers is difficult because of an exclusion of variable groups of beneficiaries in variety of schemes. A transfer of appropriate funds is what is important for reducing the fiscal burden which inevitably entails from any such decisions. What has been done : The PradhanMantri Jan DhanYojana (PMJDY) is commendably, a significant step in this direction which can help ensure financial inclusion and a direct plus more transparent transfer of funds. A recent drive called ‘Give it Up’ whereby the state requests citizens who are well above the poverty line to voluntarily give up subsidy on LPG cylinders is one more leap in this direction. But what has even more recently been introduced and has been a crucial component of  political and economic discourses is the concept of Negative Income Tax, whereby a proportion of the difference between the income of an individual and poverty line is credited to the individual’s account as ‘Negative Income Tax’. This will not only reduce the hike in fiscal burden but will also ensure the transfer of funds to so called ‘APPROPRIATE’ beneficiaries. But the picture is not as rosy as what it appears to be!!In a country like ours where a significant proportion of our poor employed population works in the informal sector, it is difficult to gauge the accurate wages, from which will be derived the amount to be transferred. Moreover employers often resort to malpractices (leveraging from the unawareness of their workers) and over present their expenses, in order to avert the Positive Income Taxes and services to their employees, further leading to an overestimation of incomes of poor workers which reduces the proportion of benefits transferred to them thereafter. Future course of action: What therefore is needed is a complete overhaul of our welfare schemes, which at the same time also ensures a non-disruption of other economic activities which are based on such schemes. This restructured mechanism must also simultaneously ensure provision of a Universal Basic Income. An alternative to it is to use Negative Income Tax at our disposal and ensure an appropriate amount of income for all the legitimate beneficiaries. Recent reports on support of UBI by Dr. Arvind Subramanian ,(Chief Economic Advisor of India) have increased speculations about the future course of action of the current Government.As according to Murphy’s Law; “What has to happen, will happen.”.Whether the current government will stick to the conventional development policies or yet another surprise awaits us in near future, is something which will be interesting to watch. -Siddharth Gupta