Universal Basic Income has been gaining much attention recently because the idea behind this is the unconditional cash payment to everyone. It is a consistent fixed cash transfer payment provided to every single citizen by the government, regardless of whether they are rich or poor, working or unemployed.
Arguments in Favor of UBI
The following are the UBI points in India.
Freedom and Justice
We all agree that freedom is the most basic and intrinsic human need. Basic income has the potential to shift society from a psychology of scarcity to the scarcity of abundance, which can improve social cohesion. UBI provides people a sense of freedom and justice throughout their lives, allowing them to do meaningful work that is not driven simply by financial needs but by choices based on personal interest and passion. In addition, it can improve well-being by making them more self-reliant or punitive welfare systems, fostering a greater sense of independence and dignity. The UBI has the fundamental role of promoting two levels of justice: providing basic rights to individuals and securing social interests.
Poverty Reduction
UBI is more appropriate in India, where it can be fixed at low income levels yet yield relatively better welfare gains.
It could help eradicate poverty, regardless of the causes of poverty. There could be a theoretical possibility that keeping the basic income above the poverty line will eliminate absolute poverty. The basic income can only be used as a treatment for the symptoms of poverty rather than the causes of poverty. The UBI scheme allows parents to invest in their children's human capital. This investment could break the poverty trap and reduce inter-generational poverty. People who don't have enough funds to start their startups or business creation, who are risking all of their savings, can feel a greater sense of relief. The additional income flow may allow poor people to invest in limited work opportunities due to credit constraints, including education, training, and migration, which produces positive spillover effects for human and economic development. There would be no shame or stigma attached to receiving benefits from it, as it would be provided universally as a "right of citizenship" rather than a targeted benefit.
Optimum Allocation and Efficient Welfare Solution
In many developing countries, including India, delivering welfare is often complicated by numerous schemes, bureaucratic issues, and high administrative costs. These problems result in poor resource allocation and ineffective implementation, especially in the poorest regions that lack strong management. For instance, India had about 950 central sector and centrally sponsored sub-schemes in the 2016 budget, making up around 5% of GDP. However, most of these schemes are relatively small in budget size, with the top 11 consuming about 50% of the total welfare budget. Many of these programs are decades old, and their ongoing use often does not reflect current needs.
Misallocation is apparent, as the poorest districts often get insufficient funding, while wealthier districts with better management implement schemes more successfully. This creates a high rate of "exclusion error," where impoverished people cannot access benefits. Data from 2011 to 2012 shows that 40% of the bottom 40% of the population were excluded from the Public Distribution System (PDS) and 65% from the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Furthermore, states such as Bihar, Madhya Pradesh, Rajasthan, Odisha, and Uttar Pradesh, which contain more than half of India's impoverished population, represented only around 30% of the MNREGS expenditure in the fiscal year 2015 to 2016.
A Universal Basic Income (UBI) may be a viable alternative to this flawed system. UBI is universal, meaning it is accessible to everyone and prevents exclusion errors, ensuring that no one is overlooked. Although inclusion error exists—where wealthier individuals also receive the benefit—this is seen as a reasonable trade-off for universal access and simplicity. UBI would significantly reduce administrative inefficiencies because it involves a straightforward transfer of funds from the government to citizens' bank accounts, removing the need for bureaucratic intermediaries.
Reducing Income Inequality
Income disparity can be curbed by instituting Universal Basic Income (UBI), which is funded by a progressive taxation of income or the abolition of subsidies that mostly favor the rich. UBI ensures that the economic system favors the most disadvantaged members of society by fairly redistributing wealth. It also provides low-income workers with greater bargaining power. They can refuse low-paying or hazardous jobs without a basic income guarantee. Employers are encouraged to enhance job quality and provide better job opportunities. UBI also protects against job losses brought on by automation and technological advancements. Numerous routine and low-skilled jobs are being eliminated due to technological changes in the labor market, which increases financial instability for many workers. A universal basic income (UBI) can act as a safety net, easing the shift to a more automated world and shielding people from job losses brought on by technological advancements. The progress of change and innovation, which is accepted by culture, can be fostered by guaranteeing a basic degree of financial stability, which can lessen societal resistance to emerging technologies.
Gender Equality
In a country like India, where female labor force participation is still very low, Universal Basic Income (UBI) could provide a significant chance to improve gender equality. Female employment, especially in urban areas, has been declining. When women do find paid work, they often end up in low-paying and insecure jobs, like domestic help or other marginal roles. UBI could empower women by recognizing and rewarding their substantial unpaid labor at home. Since UBI goes directly to individuals instead of households, it gives women independent income and more financial freedom, which is crucial in patriarchal settings where women usually have little control over household finances. However, how much UBI can promote gender equality relies heavily on women's awareness of and access to banking services and the effectiveness of government programs aimed at improving financial inclusion for women.
Increase in Financial Inclusion
Demand and supply factors are key to improving financial inclusion across India. From the demand perspective, account holders need to alter their habits. They should actively engage with their bank accounts rather than allowing them to remain dormant. On the supply side, banks must identify ways to make it economically viable to provide services in underserved and rural regions. A significant method to connect this divide is through Bank Correspondents (BCs). These individuals act as intermediaries between banks and customers in remote locations. BCs work on a commission basis, and higher commissions motivate them to become more efficient and reach more people.
Introducing Universal Basic Income (UBI) would increase the number of banking transactions due to regular government transfers. This would raise revenue for banks and BCs. More activity would lower fixed costs per unit, making banking more profitable and allowing BCs to cover greater areas. Additionally, a guaranteed basic income would increase consumption levels in rural India. This would raise demand for goods and services and, in turn, create a greater need for formal financial services. Increased economic activity would also promote better access to institutional credit. This would reduce the rural population's dependence on informal sources like moneylenders. The 2013 Debt and Investment Survey supports this idea. It shows that as farmers' consumption spending exceeds a certain point, the share of informal borrowing drops while the use of formal credit rises.
Arguments Against UBI
UBI as a "Negative Incentive"
In the modern world, work goes beyond just providing financial support. It shapes everyday routines, boosts self-worth and personal satisfaction, fosters social interaction, and helps establish identity and roles within the community. However, there are several concerns about the introduction of Universal Basic Income (UBI) that focus on work and labor participation.
The first common argument is that giving out free money may lead to laziness, making people leave the labor market altogether. The second concern, especially relevant in India, is that female labor force participation rates are already low. Critics worry that UBI might worsen the gender gap in the workforce if more women than men choose to cut back on paid work.
Finally, some critics present the "reciprocity objection." Advocates argue that people must contribute to the society that supports them financially. They express their problems that a universal basic income might lead some individuals to opt out of work while still obtaining benefits. This brings up issues related to conventional views on the social contract and the equity of welfare distribution. These arguments represent the broader conversations about the potential effects of UBI on work ethics, societal responsibilities, and economic participation.
The Costing Problem
The successful execution of Universal Basic Income (UBI) is hampered primarily by its high cost. The drive to include all citizens is particularly important in highly populated countries such as India. A thorough examination of the costs of the available programs would be required if UBI were meant to replace or simplify them. The possible consequences of such changes make this task even more difficult.
Furthermore, choosing the right UBI amount is a continuous process because inflation will eventually reduce the actual value of cash transfers.
Other Challenges
Rolling out Universal Basic Income (UBI) has daunting challenges, particularly in India. To begin with, the government already operates a series of welfare programs and subsidies. Political challenges could stem from phasing these programs out gradually or consolidating them to fund UBI. Recipients and other stakeholders generally resist such reforms.. Furthermore, managing this shift may present severe administrative difficulties if the broader economic ramifications are not fully understood.
Second, universal basic income (UBI) programs reach vulnerable groups and effectively reduce social exclusion. Still, because they are universal, they also benefit those who do not require financial assistance. This leads to the leakage of benefits to the non-poor. Third, once UBI is in place, it may be challenging for the government to stop the program, even if it becomes unsustainable or ineffective.
Finally, there are worries that the extra income from UBI could lead to more conspicuous spending.