Is Universal Basic Income Feasible in India?

The COVID-19 pandemic has ignited the discussion about universal basic income (UBI) and has brought attention to the rising income inequality in India.

The idea of UBI has been put forth repeatedly in history. It is a social policy that comprises of giving people regular, and unconditional cash payments, without being required to work for it.

The larger objective of UBI is to build a financial safety floor through which no citizen could fall, and cement a decent standard of living, particularly for those at at the bottom of the income spectrum. The people are free to spend the money as they wish in contrast to conditional in-kind transfers which have strings attached.

India has many social safety programs but they have historically lacked in implementation and failed to uplift the weaker sections of society. Moreover, intended beneficiaries have a hard time accessing these programs. A large part of the budget for these programs goes to the huge government apparatus and to the bureaucracy. They also lack effective communication programs to ensure that the public is aware of these entitlements. Moreover, the taxpayers in India get minimal to no returns on the taxes they pay.

UBI presents itself as a solution to these problems. Unconditional cash transfers are universal and provide some form of an active return to taxpayers. Owing to the high mobile penetration rate and the fact that the majority if Indian adults have a bank account, direct payments can be made in a fair and fast way, without the money getting caught up in bureaucracy in government programs.

However UBI does has numerous pitfalls.

Cash payments may reduce economic incentive to work. Moreover its effects may be nullified by ensuing inflation. There is also no guarantee that money given to people will be used in productive commerce rather than on illicit substances or unwise consumer purchases.

Although UBI solves certain short term problems, the growth of an economy is dependent largely on the skill level of its workers and the creation of new products and services.

Retraining workers in a technology based economy is a better solution for long term economic growth compared to UBI.