Union Budget 2017: What is Universal Basic Income (UBI)? Why is it important?

Union Finance Minister on his way to present the Budget 2017-18. Source-www.pib.nic.in

The Economy Survey 2016-17 talks about a big and important idea called the ‘Universal Basic Income’ or UBI, a minimum income which every individual can count on. This is important for India where a majority of people rely on seasonal employment through unorganised and unskilled jobs. UBI aims to give individuals choice and responsibility of spending an income according to their need. It is a shift of focus of beneficiaries, from households to individuals. UBI will involve direct cash transfers to bank accounts of beneficiaries. This is different from the current system where schemes are designed for specific needs and are ‘in-kind’ rather than cash. Thus, UBI is proposed as a single welfare scheme which will eventually replace all other welfare schemes.

UBI is Good UBI is BAD
UBI will reduce poverty in one single swoop. Additional income in hands of men may lead to wasteful spending.
Beneficiaries decide how they want to spend. In-kind subsidies help achieve intended objective rather than cash transfers, reducing diversion.
Better targeting of beneficiaries as UBI is universal, reduce exclusion error to almost zero. Sharing of UBI within households will be affected by gender norms. Universal in nature, this means rich are also included. So, UBI is self-defeating.
Minimum income acts as a safety net for poor against unexpected shocks. Banking system will be stressed more in absence of proper infrastructure.
UBI will encourage usage of bank accounts, ensure profits for banking correspondents, improve financial inclusion. Also, increased income will make people rely less on credit. In case of failure, UBI will be difficult to wind up.
Psychological benefit – Guaranteed income will reduce pressure on finding work to survive. Disposable income will make people lazy as there is no incentive to work.
A single welfare program will replace numerous schemes. This will be mean efficiency and better monitoring. Cash transfers are subject to market fluctuations and will curtail purchasing power.

Switzerland, through a referendum, voted down a legislation similar to UBI, last year. Finland, on the other hand, passed a cash transfer act for unemployed Finns. The problem with the concept proposed in the Survey is that it is universal. A pilot experiment of cash transfers was conducted in Puducherry in February 2015. Cash was given instead of subsidized food through ration shops. However, after eight weeks, the program was stopped due to bank branches being overburdened as they are less in number compared to ration shops. Another issue that came to light was that banks debited cash for purposes other than food.

While UBI would be a bold attempt if carried out, a lack of clarity about what it would actually mean for its beneficiaries remains to be seen, raising questions as to how it would pan out if implemented.