Can UBI combat poverty in India?

Following the GST and Demonetization, the Centre plans to come up with yet another monumental scheme, the Universal Basic Income (UBI).

Presented in this year's Economic Survey, the UBI, as the name suggests, refers to a basic minimum income for citizens to ensure basic living standards. It is proposed as an alternative to subsidies, MNREGA and other existing pro-poor schemes. Empirical evidence has shown that these schemes have been prone to red-tape and misappropriation of funds, hence have not been able to deliver the desired results. Also, the lack of a well-defined and accurate mechanism to distinguish between the poor and the non- poor has resulted in these welfare schemes benefitting the latter more.

This new proposal offers ‘universality’ of cash transfer, which means the government would not have to waste resources and time in identifying beneficiaries.

But is such an idea feasible in India?

An acceptable level of the UBI could be an income equivalent of the poverty line, which is about Rs1,090 per month for each individual (2015-16 prices). The total cost of providing this income to all Indians would amount to 12.5% of GDP, which is nearly equal to the size of the Union Government’s budget. Thus, such a UBI which provides poverty line-equivalent income to all Indians does not appear to be feasible because of budget constraints.

The scheme also presents an irony. If it seeks to target the poor and the ‘needy’, why call it universal? And if it does involve targeting, we’ll be back to square one: differentiating and identifying the poor and the non-poor.

The idea of presenting each individual with the same monetary assistance, disregarding his needs, financial status, background, etc is flawed also because; one, money given to an individual under this scheme would be definitely less than what he/she would have received in a targeted scheme; two, it will also lead to less cash in hand as compared to benefits in kind received now, which is no less than a political disaster.

It will also de-incentivise people to work, who will then be assured of a basic minimum support amount. This might lead to a fall in number of workers and also work efficiency, forcing the government to spend more on such spoon-feeding. Much of its revenue will go towards assisting non-working individuals, leaving it with less money to invest in infrastructure, which could bring the GDP down.

The concept of a UBI is widely popular in the West, however many developing economies like Switzerland rejected it. A developing and economically diverse country like India is nowhere close to being ready for a scheme like this. Its opportunity cost is huge and it's no more than an impressive theory on paper. What we really need are more pragmatic macro-economic reforms (better restructuring of taxes, efficient labour laws, minimal bureaucracy, skill development, expansion of vocational training centres, etc) that increase employment opportunities and make work atmosphere more conducive. A debate on UBI is just digressing us from looking for more substantial solutions for the present economic challenges.