Syllabus: GS II Welfare Schemes for Vulnerable Sections of the population by the Centre and States and the Performance of these Schemes; Mechanisms, Laws, Institutions and Bodies constituted for the Protection and Betterment of these Vulnerable Sections.
Discuss the concept of Universal Basic Income (UBI) in India and evaluate its potential to reduce poverty and economic inequality. Examine the challenges associated with its implementation and propose strategies for its successful adoption.
(15 marks, 250 words)
Universal Basic Income (UBI):
UBI refers to a social welfare framework wherein all citizens receive a regular, unconditional cash payment from the government. This payment is provided irrespective of an individual’s employment status, income level, or wealth, ensuring financial security for everyone. The payments are made periodically, typically monthly or annually, creating a universal support system.
The Need for UBI:
UBI seeks to address India’s persistent challenges of poverty, inequality, and gaps in social security. In the Indian context, widespread poverty and uneven wealth distribution continue to hinder sustainable development. The World Inequality Report 2022 reveals that the top 1% of India’s population controls over 22% of national income, while the bottom 50% holds just 13%. UBI has the potential to lift millions out of poverty, reduce income disparities, and empower marginalized communities.
- Poverty and Income Inequality:
- Economic growth in India has not translated into equitable wealth distribution. UBI could serve as a tool to provide a financial safety net, helping reduce poverty and closing the wealth gap.
- For example, trials conducted by SEWA and UNICEF in Madhya Pradesh showed that direct cash transfers led to increased spending on health, nutrition, and education, improving quality of life for vulnerable populations.
- Informal Economy:
- India’s informal sector employs around 90% of its workforce, characterized by irregular income and minimal job security. The COVID-19 pandemic further exposed the vulnerability of these workers, leaving millions jobless. UBI could offer financial stability, encouraging greater participation in the formal economy.
- Health Expenditure:
- High out-of-pocket healthcare expenses (around 62.4% of total health expenditure) further exacerbate poverty. UBI could enhance access to affordable healthcare, reducing the financial burden on individuals and families.
- Simplifying Welfare Systems:
- India currently administers over 950 central and state welfare schemes, many of which suffer from inefficiencies, corruption, and leakages. A consolidated UBI framework could streamline these programs, reducing administrative costs and improving the efficiency of welfare distribution.
- Demographic Dividend and Economic Growth:
- With over 65% of India’s population under 35, the country is positioned to benefit from its demographic dividend. However, challenges like structural unemployment and skill mismatches persist. UBI could complement initiatives like Skill India and Atmanirbhar Bharat, providing economic security and enhancing the overall workforce capabilities.
Advantages of UBI in India:
- Boosting Consumption and Economic Growth:
- UBI can stimulate consumption, especially in rural and semi-urban areas, by increasing disposable income. A UBI set at ₹7,620 per year would cost approximately 4.9% of GDP, which could be achieved through subsidy rationalization as suggested in the Economic Survey 2016-17.
- Empowering Marginalized Communities:
- UBI has the potential to empower women and marginalized groups, improving financial inclusion. The Global Findex 2021 revealed that only 77% of women in India have formal banking access, compared to 97% of men. UBI can enhance women’s autonomy, access to education, and healthcare, thus reducing gender disparities.
- Reducing Economic Inequality:
- The top 10% of the population holds 77% of national wealth, while the bottom 50% has just 13%. UBI could contribute to wealth redistribution, fostering greater equity and reducing income disparities.
- Consolidating Welfare Schemes and Subsidies:
- UBI could consolidate India’s numerous welfare programs, which are often plagued by inefficiencies and leakages. The success of Direct Benefit Transfers (DBT), facilitated by Aadhaar-linked accounts, showcases the potential for digital infrastructure to improve welfare distribution.
- Broadening the Tax Base:
- UBI could incentivize greater participation in the formal economy, broadening the tax base and improving compliance. For instance, India’s Goods and Services Tax (GST) collections, reaching ₹1.65 lakh crore in July 2024, highlight the potential for revenue growth through formalization.
- Boosting Local Economies:
- Increased disposable income from UBI could stimulate consumer spending, which accounts for about 60% of India’s GDP, driving economic growth and creating jobs.
- Financial Freedom and Empowerment:
- UBI provides individuals with financial freedom, allowing them to make choices related to education, entrepreneurship, or caregiving without the constant pressure of financial constraints.
Challenges and Barriers to UBI Implementation:
- High Fiscal Cost:
- UBI requires substantial government expenditure, potentially straining India’s already limited fiscal resources. The fiscal deficit target for 2024-25 is 4.9% of GDP, which could be exceeded with the introduction of UBI.
- Inflation Risk:
- If not managed carefully, UBI could exacerbate inflation, eroding the purchasing power of the cash transfers. In August 2024, India’s inflation rate stood at around 3.65%. Without corresponding increases in goods and services, inflation could reduce the real value of UBI payments.
- Opportunity Cost:
- The funds allocated to UBI could instead be invested in other critical sectors like healthcare, education, and infrastructure, which have long-term benefits for poverty alleviation and economic development.
- Targeting Issues:
- UBI is universal and unconditional, meaning even the wealthy receive payments, diluting its potential impact on reducing economic inequality. Proper targeting mechanisms would be necessary to ensure that vulnerable groups benefit the most.
- Potential Misuse:
- Without proper financial literacy, there is a risk of inefficient use of UBI payments, leading to misuse. As of 2023, only 27% of Indian adults were financially literate, raising concerns about the efficient utilization of these funds.
- Work Disincentives:
- Critics argue that UBI might reduce the incentive to work, potentially lowering labor force participation rates, particularly in sectors where jobs are already limited. In 2023-24, India’s labor force participation rate was around 60.1%, and UBI could exacerbate this issue further.
Way Forward:
- Phased Introduction:
- A phased rollout, starting with regions that have better infrastructure and gradually expanding to more challenging areas, can help address implementation challenges.
- Small-Scale Trials:
- Pilot programs in diverse regions can provide valuable insights on UBI’s impact on poverty, employment, and economic activity, helping refine the approach before national adoption.
- Targeted Approaches:
- UBI should prioritize vulnerable groups such as informal workers, women, and the rural poor, ensuring that the most disadvantaged populations receive the maximum benefit.
- Financial Literacy Programs:
- Educating recipients on managing UBI payments effectively can enhance their productive use, reducing the risk of misuse.
- Inflation Control:
- The Reserve Bank of India should closely monitor inflation and adjust monetary policies to mitigate potential inflationary pressures from UBI.
- Consolidation of Welfare Programs:
- Streamlining existing welfare schemes into a unified UBI framework could reduce inefficiencies, administrative costs, and improve resource allocation.
- Broadening the Tax Base:
- Encouraging formal employment and tax compliance through UBI could help fund UBI payments and generate sustainable revenue streams.
Conclusion:
As India embarks on its journey towards a developed nation, UBI has the potential to play a crucial role in ensuring economic security, reducing inequality, and fostering inclusive growth. However, careful planning, phased implementation, and targeted interventions are essential to address the challenges associated with UBI and ensure its successful adoption. In the words of Dr. B.R. Ambedkar, “There can be no equality without adequate means to ensure it.”
