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Economy

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October 17, 2017

There is a considerable push for implementation of Universal Basic Income (UBI) in India. Critically examine its feasibility. 

Refer - Livemint

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IAS Parliament 6 years

KEY POINTS

Universal Basic Income (UBI)

·         A universal basic income is, like many rights, unconditional and universal: it requires that every person should have a right to a basic income to cover their needs, just by virtue of being citizens.

Need for UBI

·         A large proportion of the population in India still lives below the poverty line.

·         A large number of government programmes providing subsidies and support to the poor are marred by inefficiencies.

·         There are leakages in the system, and often, people who actually need government support are left out.

·         Therefore, it is argued that Universal Basic Income will overcome these problems by providing a basic income to all citizens.

·         The basic idea of UBI is not new for India as the erstwhile Planning Commission had worked on it in the early 1960s.

·         The Economic Survey 2016-17 has advocated the concept of UBI as an alternative to the various social welfare schemes in an effort to reduce poverty.

·         International Monetary Fund (IMF), in its annual Fiscal Monitor report, studied about replacing food and fuel subsidies with an UBI in India.

Feasibility

·         The biggest issue is that India doesn’t have the fiscal capacity to implement Universal Basic Income.

·         For example, the Economic Survey calculations showed that a 75% universality rate with an annual Universal Basic Income of Rs7,620 per year at 2016-17 prices will cost about 5% of the GDP.

·         It is often assumed that resources can be raised by rationalizing subsidies.

·         These may not happen politically, because it will be extremely difficult to roll back subsidies in order to create fiscal space for UBI.

·         Universal Basic Income can create distortions in the labour market.

·         A steady, permanent and guaranteed income without any work is likely to affect labour mobility and participation.

·         Higher wages without a commensurate increase in productivity will affect India’s competitiveness.

·         Political parties, in order to improve their chances in elections, would want to increase the amount of UBI or try to bring back subsidies in some form or the other, which will have fiscal implications.

Solutions

·         India’s immediate need is not UBI, it is rationalization of subsidies, better targeting and operational efficiency.

·         It needs to move to cash transfers at an accelerated pace with the use of Jan-Dhan, Aadhaar and mobile.

·         This will help reduce costs and spare resources for capital spending to augment growth. 

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