Universal Basic Income: Revolutionizing Welfare in India

The idea of Universal Basic Income (UBI) has resurfaced in India as a possible solution to tackle rising unemployment and inequality, particularly due to the growing impact of automation and artificial intelligence.

Although UBI has been a topic of debate for years—with supporters claiming it could replace inefficient welfare programs—questions about its feasibility and desirability remain. A more practical, scaled-down version of UBI, considering existing cash transfer schemes like PM-KISAN, may be a viable option. A universal income transfer amounting to about 1% of GDP per capita could act as a basic social safety net. This approach could reduce administrative costs and minimize exclusion errors, while also addressing fiscal and implementation concerns.

Arguments in Favor for UBI in India

• Structural Economic Transformation:
  Implementing UBI could drive a significant transformation in India’s economy by addressing disguised unemployment in the agricultural sector.
  According to the Economic Survey 2023-24, the agriculture sector supports 42.3% of the population but contributes only 18.2% to GDP, indicating low productivity.
  UBI could provide financial security, enabling surplus agricultural workers to transition to more productive sectors, potentially accelerating India’s economic modernization, similar to the transformations seen in East Asian economies like South Korea.
  This shift could enhance overall productivity and economic growth in India.
• Reforming the Social Security Framework:
  UBI presents an opportunity to overhaul India’s fragmented social security system.
  The current system, with numerous schemes, suffers from high exclusion errors and consumes a large portion of the budget.
  In 2022-2023, Central Sector Scheme expenditure totaled ₹14,45,922.58 crore.
  Though the National Food Security Act covers 67% of the population, over 90 million eligible people have been excluded from the Targeted Public Distribution System (TPDS).
  UBI could provide a foundational social safety net, allowing for more efficient targeting of top-ups for vulnerable groups such as the elderly or disabled, aligning with global trends like the World Bank’s Adaptive Social Protection framework.
• Demographic Dividend Optimization:
  India is at a critical stage in its demographic transition, with a median age of 28.4 years.
  However, high youth unemployment (23.22% in 2022, per ILO) threatens the potential demographic dividend.
  UBI could empower young people by providing resources for skills development, entrepreneurship, or higher education, thereby creating a more skilled workforce and fostering innovation.
  For example, an OECD report in March 2023 highlighted that a lack of green skills is hindering growth in sustainable jobs.
  By reducing the opportunity cost of education and training, UBI could help close this gap.
• Climate Resilience and Adaptive Capacity:
  India is highly vulnerable to climate change, with the World Bank predicting that 45 million Indians could be pushed into poverty by 2030 due to climate impacts.
  UBI could enhance climate resilience by providing financial support during climate shocks, helping affected populations rebuild, and reducing distress migration.
  Moreover, UBI could make it politically feasible to implement disruptive yet necessary climate policies, such as carbon pricing or phasing out fossil fuel subsidies, aligning with the “just transition” concept advocated at COP 28 in 2023.
• Redefining Work and Productivity:
  UBI has the potential to reshape societal views on work and productivity in India.
  By providing basic financial security, it could recognize and value work that currently goes unacknowledged, such as care work and community service.
  This is particularly relevant in India, where women spend an average of 299 minutes per day on unpaid domestic labour compared to 97 minutes for men (National Sample Survey).
  UBI could serve as implicit compensation for this unpaid work, fostering a more equitable division of labour and challenging traditional definitions of productive work.
• Data-Driven Policy Implementation:
  Scaling up UBI would generate extensive data on income, consumption, and economic behaviour across India’s diverse population, revolutionizing evidence-based policymaking.
  Real-time data on consumption patterns, in place of traditional surveys like the Household Consumption Expenditure Survey, could inform more targeted monetary and fiscal policies.
  UBI, delivered through digital payments, could significantly expand this data collection, leading to more responsive economic governance.
• Geopolitical Soft Power and Global Leadership:
  Successfully implementing the world’s largest UBI program would position India as a leader in innovative social policy.
  This could enhance India’s soft power and influence in international forums, especially in discussions on global inequality.
  As UBI gains traction globally, India’s experience could provide valuable insights for other developing countries, aligning with India’s aspirations for greater global influence, as seen during its G20 presidency in 2023, where it championed the Global South.
• Addressing Extreme Poverty and Malnutrition:
  Despite significant economic growth, India continues to struggle with extreme poverty and malnutrition.
  The 2023 State of Food Security and Nutrition in the World report found that 74% of Indians cannot afford a healthy diet, and 39% lack nutrient-adequate diets.
  The Global Hunger Index 2024 ranked India 105th out of 127 countries, with a score of 27.3, indicating a “serious” hunger level.
  A UBI could provide immediate financial relief to the poorest citizens, helping to alleviate extreme poverty.

Arguments against UBI in India

• Fiscal Unsustainability:
  Implementing UBI in India faces significant fiscal challenges. Recent data from the International Monetary Fund indicates that the combined debt of the central and state governments reached 81% of GDP in 2022-23.
• Inflationary Pressures:
  A large-scale cash transfer program like UBI could potentially drive inflation, leading to price increases in essential goods and services in the Indian economy.
• Labor Market Distortions:
  Critics argue that UBI may reduce incentives to work, particularly in low-wage sectors that comprise a significant part of India’s labor market. This could exacerbate labor shortages and affect productivity.
• Targeting and Equity Concerns:
  A universal program, by its nature, would extend benefits to both the poor and non-poor, raising concerns about equity and the efficient allocation of scarce resources. Critics suggest that targeted programs may be a better alternative for reaching the most vulnerable.
• Implementation Challenges:
  India’s vast and diverse socio-economic landscape presents major implementation hurdles for a UBI program. Differences in regional infrastructure, literacy, and access to financial services could lead to unequal distribution and effectiveness.
• Opportunity Cost and Development Trade-offs:
  Allocating a large share of government expenditure to UBI may divert funds from critical areas like healthcare, education, and infrastructure, limiting investments needed for long-term development.
• Global Economic Competitiveness:
  UBI could impact India’s global competitiveness, particularly in labor-intensive industries, by increasing wage expectations and reducing the labor supply, potentially affecting the country’s cost advantage in sectors like manufacturing.

How can India implement UBI?

• Phased Implementation and Pilot Programs:
  India should begin by introducing targeted pilot programs across diverse regions to evaluate UBI’s effectiveness and uncover potential implementation challenges.
• Leveraging Digital Infrastructure:
  India’s strong digital framework, particularly the JAM (Jan Dhan-Aadhaar-Mobile) trinity, offers an excellent foundation for rolling out UBI effectively and efficiently.
• Gradual Consolidation of Existing Schemes:
  Rather than a sudden transition, India should progressively merge its existing social welfare schemes into a unified system, allowing for a smoother shift towards UBI.
• Progressive Funding Mechanism:
  To ensure UBI is financially sustainable, India must broaden its tax base and explore innovative funding solutions to support the program without straining fiscal resources.
• Adaptive Payment Structure:
  To address concerns about reduced work incentives and maintain long-term sustainability, India could adopt a flexible UBI model that adjusts payments based on specific conditions.
• Integration with Skill Development and Employment Programs:
  To mitigate any potential negative impacts on labor force participation, UBI should be integrated with initiatives focused on skill development and employment generation.
• Robust Monitoring and Evaluation System:
  A strong monitoring and evaluation framework is essential for assessing the performance and effectiveness of UBI, ensuring its success in India.

While UBI may not be a one-size-fits-all solution, its phased implementation through pilot programs and the integration of existing cash transfer schemes like PM-KISAN could provide a feasible route to a more inclusive and resilient economy. Achieving success will require thoughtful evaluation of trade-offs and a balanced approach.

The End of the Blog: Universal Basic Income: Revolutionizing Welfare in India