Chanakya IAS Academy Blog

Notice

Universal basic income

The Basic income or The Universal Demogrant (UD) is a periodic cash payment unconditionally delivered to all residents on an individual basis, without means-test or work requirement. The persistence of poverty and significant leakages in welfare schemes that aim to alleviate it has prompted the idea of UBI. But how far is it justifiable to give charity to able bodied persons?

Benefits-

  • Potentially comprehensive antidote to poverty -minimum income security would enable individuals to plan their lives better and undertake more meaningful activities and also raise their bargaining power.
  • Simpler & easier to administer-could replace 100 odd schemes that govt runs for poverty elimination.
  • Equitable & wide safety net
  • Open organized credit avenues for poor who currently borrow from unorganized sector.
  • In the light of fears of automation and consequent job losses, UBI can guarantee all individuals some income.
  • Can prevent collapse of consumer market due to decrease in purchasing power because of income inequality or work obsolescence.

Improvement over current subsidy regime

  • Targeted welfare services often excludes a lot of the deserving households from receiving subsidies and it becomes difficult to ascertain who are rightfully entitled to receive such benefits.
  • Historic focus of poverty elimination schemes on individuals poor by virtue of accident of their birth but with declining poverty, the accident of birth has become less important than the accident of life
  • Reduce the burden of the bureaucracy in identifying the deserving beneficiaries.
  • Minimize Leakages.

Challenges

  • Inadequate banking network-Inspite of huge success of Jan Dhan Yojana (PMJDY), there are still many who do not have bank accounts hence hampering the delivery of the service.
  • It can lead to erosion of purchasing power on account of inflation.
  • Fiscal affordability-huge pressure on govt budget (around 5-10% of GDP )
  • Reduce the motivation for work and might encourage people to live off assured cash transfers
  • Might raise wages due to the decline in the supply of casual labourers
  • Political feasibility-since it involves elimination of existing benefits to some powerful interest groups.

Way forward

The government should ensure the minimum level of subsistence for all, but only to those who show willingness to work. In such a transition to a universal basic income, the government should not resort to raising additional tax revenue through indirect taxes and cess there on. Thus the idea of a basic income should not be unconditional & a substitute for all existing subsidies rather it should complement the existing ones.

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