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Universal Basic Income: Its Advantages and Concerns

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Various schemes are introduced by the center and states for the welfare of the people. One of the schemes which are very important and discussed is Universal Basic Income. This scheme is considered very important for upcoming exams because it is in the news current days. Current affairs section is playing important role in getting success in any competitive exam.

Universal Basic Income: An Introduction

  • A Universal Basic Income (UBI) is a model for providing a fixed amount of money to all citizens of a country or other region, regardless of income, resources, or employment status. 
  • This is the Western way of thinking that a high degree of automation has led to high unemployment. This idea was popularized by philosophers such as Thomas Paine, who argued that the earth’s resources are the common property of all.
  • In India, one in three women lives in poverty, with huge marginal farmers, small farmers, and day laborers slipping in and out of poverty. This concept will serve as a poverty alleviation measure in India. Moreover, the universality of the program avoids exclusion, and the bureaucratic burden of identifying beneficiaries and cash transfers does not distort the market. 

Main Purpose:

  • To Avoid or Reduce Poverty and Increase Citizen Equality
  • Underlying Principle: Basic Income is the idea that every citizen is entitled to a decent income, regardless of whether they contribute to production or not, and regardless of the particular circumstances in which they were born. 
  • Economic Survey of India 2016-17 advocates the concept of UBI as an alternative to various social assistance schemes to reduce poverty.

Main Characteristics:

  • UBI is universal. This means that UBI is not targeted.
  • UBI is a money transfer, not a physical transfer. UBI is unconditional. In other words, you do not need to prove your unemployment status or socioeconomic identity to qualify for UBI.
  • As a form of social security, UBI helps reduce inequality and eradicate poverty. In this way, the safety and dignity of all people are guaranteed. As technology replaces human labor, wage income and purchasing power will decline. UBI compensates for reduced purchasing power.
  • Four major components.
    1. Universality: Universal.
    2. Recurring: payments at regular intervals (no one-time grants)
    3. Individuality: Paying Individuals
    4. Unconditional: there are no prerequisites for sending money.

Major Advantages

  • UBI enhances financial freedom at the individual level. It helps them choose the work they want to do, rather than forcing them to do unproductive work to meet their daily needs.
  • An unconditional basic income is like insurance against unemployment and helps fight poverty. It leads to a fair distribution of wealth.
  • Higher incomes increase an individual’s bargaining power as they are no longer forced to accept working conditions.
  • Due to its universal nature, it is not necessary to identify the beneficiary. This eliminates errors in identifying intended beneficiaries, a common problem in targeted welfare systems.
  • All individuals receive a basic income, reducing waste and increasing efficiency in government transfers. This also helps reduce spoilage. Replacing many systems in the social sector with UBI can save a lot of paperwork and time.
  • As economic research shows, direct transfers of basic income to bank accounts will increase demand for financial services. This will help banks invest in expanding their service networks, which is so important for financial inclusion.

Major concerns and Challenges

  • Under UBI, with 10,000 remittances per person per year, the Treasury costs about 10% of his GDP, while all current welfare schemes together cost only 5.2% of GDP.
  • There are serious concerns that a UBI will distort the labor market, as workers’ regular and easy income will reduce their willingness to work.
  • The patriarchal stereotype further emphasizes that the scholarship men receive is spent on attractive commodities such as cigarettes and alcohol. This is very important because welfare programs are used to fund various utilities, but UBI will replace utilities with attractive commodities.
  • A problem that has gone unnoticed is inflation. While food subsidies are immune to market price fluctuations, basic income is highly vulnerable to inflationary pressures.
  • Moreover, rural banking infrastructure density is very low. Less than 60% of Jan Dhan’s accounts are reportedly linked to his Aadhaar, which could lead to discrepancies in identifying individuals. There are also concerns that the program could be abused to win elections for the political class.
  • According to the World Bank, there are only 20 ATMs per million adult population in India. Nearly a third of Indian adults do not have bank accounts. With such a financial services infrastructure and a state of financial inclusion, it is difficult for people to access services.
  • Another challenge is ‘guaranteed minimum income’ funding. UBI may be added to existing subsidies rather than replacing them.
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Last Updated : 17 Oct, 2022
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