The time has come to think of UBI for a number of reasons:
Social Justice
UBI is, first and foremost, a test of a just and non-exploitative society.
It should be evident to anyone that no society can be just or stable if it does not give all members of the society a stake.
A Universal Basic Income promotes many of the basic values of a society which respects all individuals as free and equal.
It promotes liberty because it is anti-paternalistic, opens up the possibility of flexibility in labour markets.
It promotes equality by reducing poverty.
It promotes efficiency by reducing waste in government transfers. And it could, under some circumstances, even promote greater productivity.
It is not an accident that Universal Basic Income has been embraced both by thinkers of the Left and of the Right.
Poverty Reduction
Conditional on the presence of a well-functioning financial system, a Universal Basic Income may simply be the fastest way of reducing poverty.
UBI is also, paradoxically, more feasible in a country like India, where it can be pegged at relatively low levels of income but still yield immense welfare gains.
Agency
The poor in India have been treated as objects of government policy. Our current welfare system, even when well intentioned, inflicts an indignity upon the poor by assuming that they cannot take economic decisions relevant to their lives.
An unconditional cash transfer treats them as agents, not subjects. A UBI is also practically useful. The circumstances that keep individuals trapped in poverty are varied; the risks they face and the shocks they face also vary.
The State is not in the best position to determine which risks should be mitigated and how priorities are to be set. UBI liberates citizens from paternalistic and clientelistic relationships with the State. By taking the individual and not the household as the unit of beneficiary, UBI can also enhance agency, especially of women within households.
Society’s obligation to guarantee a minimum living standard is even more urgent in an era of uncertain employment generation.
Moreover, UBI could also open up new possibilities for labour markets. It creates flexibility by allowing for individuals to have partial or calibrated engagements with the labour market without fear of losing benefits.
They allow for more non-exploitative bargaining since individuals will no longer be forced to accept any working conditions, just so that they can subsist.
Administrative Efficiency
In India, in particular, the case for UBI has been enhanced because of the weakness of existing welfare schemes which are riddled with misallocation, leakages and exclusion of the poor.
When the trinity of Jan-Dhan, Aadhaar and Mobile (popularly referred to as JAM) is fully adopted the time would be ripe for a mode of delivery that is administratively more efficient.
The administrative argument however has to be made with some care. While Aadhar is designed to solve the identification problem, it cannot, on its own, solve the targeting problem.
It is important to recognise that universal basic income will not diminish the need to build state capacity: the state will still have to enhance its capacities to provide a whole range of public goods.
UBI is not a substitute for state capacity: it is a way of ensuring that state welfare transfers are more efficient so that the state can concentrate on other public goods.
Arguments in Favour and Against UBI
For:
Poverty and vulnerability reduction: Poverty and vulnerability will be reduced in one fell swoop.
Better targeting of poor: As all individuals are targeted, exclusion error (poor being left out) is zero though inclusion error (rich gaining access to the scheme) is 60%.
Insurance against shocks: This income floor will provide a safety net against health, income and other shocks.
Improvement in financial inclusion: Payment – transfers will encourage greater usage of bank accounts, leading to higher profits for banking correspondents (BC) and an endogenous improvement in financial inclusion. Credit – increased income will release the constraints on access to credit for those with low income levels.
Psychological benefits: A guaranteed income will reduce the pressures of finding a basic living on a daily basis.
Administrative efficiency: A UBI in place of a plethora of separate government schemes will reduce the administrative burden on the state.
Against:
Conspicuous spending: Households, especially male members, may spend this additional income on wasteful activities.
Moral hazard (reduction in labour supply): A minimum guaranteed income might make people lazy and opt out of the labour market.
Gender disparity induced by cash: Gender norms may regulate the sharing of UBI within a household – men are likely to exercise control over spending of the UBI. This may not always be the case with other in-kind transfers.
Implementation: Given the current status of financial access among the poor, a UBI may put too much stress on the banking system.
Fiscal cost given political economy of exit: Once introduced, it may become difficult for the government to wind up a UBI in case of failure.
Political economy of universality – ideas for self-exclusion: Opposition may arise from the provision of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for the poor.
Exposure to market risks (cash vs. food):Unlike food subsidies that are not subject to fluctuating market prices, a cash transfer’s purchasing power may severely be curtailed by market fluctuations.
UBI for Women
Women face worse prospects in almost every aspect of their daily lives – employment opportunities, education, health or financial inclusion. Simultaneously, there exists plenty of evidence on both, the higher social benefits and the multi-generational impact of improved development outcomes for women.
A UBI for women can, therefore, not only reduce the fiscal cost of providing a UBI (to about half) but have large multiplier effects on the household.
Giving money to women also improves the bargaining power of women within households and reduces concerns of money being splurged on conspicuous goods.
The UBI could also factor in children in a household to provide a higher amount to women. This addition, though, has three potential problems – one, it may not be easy to identify the number of children in a household; two, it may encourage households to have a greater number of children; andthree, phasing out boys from beneficiary list once they reach a certain age (say 18 years) may not be easy to monitor and undertake.
Universalize across Groups
Another approach is to phase in a UBI for certain vulnerable groups – widows, pregnant mothers, the old and the infirm – first.
This would serve as a means for the state to make good of its promise – sometimes mandated by law – to support the most vulnerable.
Furthermore, these are easily identifiable groups of individuals. Previous studies show that leakages in pensions are already low and while the maternity benefits pilots suffer from implementation problems, there is some evidence to show that they have helped smooth over medical costs for the poor.
A Brief History of Targetting
An immediate and intuitively appealing solution to the fiscal costs of UBI is to make it a targeted basic income scheme, attempting to guarantee a basic income to only the poor and the deserving.
However, India’s record of targeting welfare programmes to the poor has been suspect. Targeting commenced with the drawing up of lists of poor based on self-reported income in 1992 with subsequent survey rounds done with different – and more multidimensional – identification criteria in 1997 and 2002. Even the 2002 list of criteria for identifying BPL households, considered to be more rigorous than either of the previous rounds of surveys came under criticism from many sides.
Studies – and government audits – showed data manipulation and corruption, with the crowding out of the poor and the truly deserving from BPL card ownership and leakages to the rich.
Targeting was both inefficient and inequitable, a license to fraud that spawned an entire ecosystem of middlemen and petty abuse.
Recognizing this, the government of the day attempted to measure poverty using an easily identifiable list of criteria and a simple scoring methodology through the Socio-Economic Caste Census (2011). Simultaneously, acknowledging the inherent problems with targeting, individual states- like Tamil Nadu and Chhattisgarh - universalized access to the PDS and a few other government schemes.
The National Food Security Act (2013), in a clear break away from targeting to a minority of the population, mandated access to the PDS to nearly 70% of all households, choosing to exclude only the identifiably well-off.
This gradual move towards greater inclusion error in order to avoid exclusion issues is directly in line with Gandhiji’s talisman – the poorest are the ones who benefit the most from such a move.
