The Covid-19 pandemic, which triggered numerous measures such as lockdowns and social distancing, has had a substantial impact on economies worldwide. With sectors suffering collateral damage, the International Monetary Fund (IMF) has suggested the crisis could be the most severe since the Great Depression of 1929. India, boasting a 90% informal sector workforce without minimum wages or social security, is especially vulnerable. Job opportunities were already scarce prior to the pandemic, but a potential solution may lie in the concept of a Universal Basic Income (UBI) program.
The Universal Basic Income Concept
The Economic Survey of India 2016-17 proposed UBI as an alternative to various social welfare schemes to alleviate poverty. UBI asserts that every citizen should have a right to a basic income to cover their needs. Its aim is to mitigate poverty and advance equality among citizens, comprising five components: universality, payment regularity, direct payments to individuals, cash transactions (instead of food vouchers or service coupons), and unconditionality (no preconditions attached to cash transfer).
International Endorsement of UBI
Countries like Kenya, Brazil, Finland, and Switzerland have embraced the UBI system. High-profile advocates include Nobel Laureates Peter Diamond and Christopher Pissarides in Economics, and tech leaders Mark Zuckerberg and Elon Musk. If regularly implemented, UBI can ensure sustenance for workers in the informal sector until the economy normalizes.
Benefits of Universal Basic Income
UBI guarantees a steady income stream for individuals, which in turn reduces societal poverty and income inequality. It boosts the purchasing power of the poor, potentially increasing aggregate demand. Implementation simplicity makes it efficient, eliminating the need for beneficiary identification, thereby reducing government spending waste.
Challenges in Implementing UBI
Implementing UBI is not without barriers. The fiscal cost of UBI, calculated at Rs. 7,620 with 75% universality, amounts to 4.9% of the GDP. Balancing the resultant deficit by reducing existing subsidies is a complex task. Furthermore, cash dispensed may not necessarily be spent on productive activities or essential services such as education and health. Recipients might expend it on luxury items or harmful substances such as tobacco, alcohol, and drugs. Free cash could drive inflation rates up in the economy, and workers might refuse to work or demand higher wages, escalating agricultural goods’ production costs.
The Future of UBI Post-Pandemic
The 2017 Economic Survey highlighted UBI as an appealing concept and potential substitute for social welfare programs aimed at poverty reduction. UBI espouses an uncompromised social safety net, endeavouring to ensure a dignified life for everyone. In the face of uncertainties brought about by globalization, technological change, and automation, this concept is gaining traction. Amidst the unemployment, income inequality, and poverty triggered by the Covid-19 pandemic, it seems that UBI’s time has come.
