With the government of India imposing a country-wide lockdown to prevent the spread of the deadly COVID-19, most of the economic institutions across the country have come to a standstill. With only essential services being allowed to continue, many industries and sectors have been hit very hard. The move to go under lockdown has especially hurt the informal sector as well as small business owners due to the sudden stop in the daily cash flow that they are dependent on. A large portion of the Indian economy is unorganised, depending on their daily earnings for survival and the loss of customers for this duration will result in the loss of wages, and possible unemployment as well.
The idea of a universal basic income (UBI) has been floated across as a possible measure to support the economic structure of the country. In the beginning of April, 2020, Spain, one of the countries that was affected the most by the Covid-19 outbreak announced that they would provide a UBI to the people as soon as possible to help alleviate the situation of the people in the country.
What is a universal basic income?
A UBI is a periodic cash payment by the government to each citizen, unconditionally delivered without any form of a test or work requirement. The income per se that is paid by a government is fixed and is made to every adult citizen irrespective of the economic status of the individual. The possibility of implementing in India was discussed in a chapter that was published by the Economic Survey of India in 2017 and it outlined 3 basic components:
- Universality: It is paid to everyone irrespective of their status.
- Unconditionality: The payment made is without any attached condition such as a means test.
- Agency: Once paid, the government does not dictate how it must be used. It is entirely up to the individual’s choice on how they choose to use the income.
By providing a UBI, irrespective of the amount that is given, the government ensures a basic material foundation on which an individual can firmly rest on.
Can such a system be implemented in India?
The idea of a minimum basic income in India was discussed by Jawaharlal Nehru as early as 1938. The idea of implementing a UBI was also included in the manifesto of the Indian National Congress for the 2019 general elections. In 2011, UNICEF, along with a non-profit trade union called the Self Employed Women’s Association (SEWA) entered into a partnership with the government of Madhya Pradesh to run two pilots where unconditional cash transfers were made to certain villages in the state. In the general pilot which was conducted, individuals in 8 villages were provided with a basic income directly into their bank accounts while 12 other villages did not receive any sort of a basic income. An amount of 150 rupees was granted to children, while 300 rupees was given to adults on a monthly basis.
The findings of the study did show a positive change in the villages that had received a basic income. Some of the changes that could be noticed included:
- Improvement of basic living conditions, such as sanitation.
- Improvement in cooking and lighting energy sources.
- A significant increase in food sufficiency over a period of time.
- A positive impact on children’s nutrition, particularly in female children.
- An increased capacity of households to buy from the market, thereby resulting in a shift in quality of food consumed. The increased capacity however did not result in an increase in expenditure on alcohol.
- A more rational response to illness through more regular medication.
- A general reduction in indebtedness of families which used to be caused due to various reasons.
- A reduction in child labour, and increased spending on children’s education.
The pilot clearly showed that there were benefits that could be derived through the introduction of a universal basic income system.
Apart from these material benefits, a UBI also acts as an insurance against shocks. In the current scenario, where a large amount of the population is unsure of their financial future due to the uncertainty of the lockdown period, a UBI would be especially useful.
While a UBI need not immediately replace all the schemes that are already in place, a slow, gradual removal of ineffective/less effective schemes can also reduce the administrative burden on states. The rapid implementation of a national biometric database over the past few years in India, along with schemes such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) that look at financial inclusion of the people, India has managed to build a strong enough structure for a direct cash transfer to bank accounts of individuals.
Criticisms to UBI
With India being a largely patriarchal society, gender disparity is prevalent and one of the reasons for this is the lack of access to cash. Men often take control of the spending of a household, and this would increase the disparity. The basic income system must look at transferring the amount into individual bank accounts rather than into household accounts with the aim of reducing disparities between individuals within a household. The provision of a cash transfer also does not protect one against the fluctuation in market prices, affecting the purchasing power of individuals, something that wouldn’t occur in the case of government subsidies.
The biggest issue a country like India would face, would be with respect to the implementation of such a massive scheme. While the banking system has definitely improved, issues such as last mile connectivity do exist and must be resolved before the implementation of a UBI. In case of a failure of such a system, the exit costs might be too high, especially in a political sense for governments to actually invest in such a system.
The pilot run by SEWA clearly showed the benefits a UBI scheme could have in a country like India. The study done by the Economic Survey suggested that by providing a universal transfer of 7620 rupees would result in the reduction of people living below the poverty line from 22% to 0.45%. The study put forward statistics that showed the inefficiencies of the current welfare systems due to the presence of middle-men, and suggested a total shift to UBI instead which eliminated the middle men due to it being a direct transfer to the bank accounts of individuals. The same data showed that by providing the suggested 7620 rupees in a quasi-universal manner to 75% of the population, the cost on the economy would amount to around 4.9% of the GDP, which is lesser than the 5.2% that current welfare systems take up.
While it is definitely unwise to introduce a system like this out of the blue, a UBI system can definitely be rolled out in a gradual manner in India to support the economy, especially in times like these.
 All figures from 2017.
ABOUT THE AUTHOR
Karthik Subramaniam is an undergraduate student at NALSAR University of Law, Hyderabad, India. His main research interests lie in areas of alternate dispute redressal, including mediation and negotiation. He also dabbles in areas of international human rights, IPR and sports law.
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