Universal Basic Income (UBI) is a scheme by the government to provide a guaranteed minimum income to everyone in a country without any terms laid. It is also known as Basic Income, Guaranteed Minimum Income or Citizen’s Income.
The purpose of this is to provide enough to maintain a decent cost of living and give financial security. The idea of the basic income has been revived at a time when automation is rendering many unemployed. In times of crisis like the current Covid-19 Pandemic, its utility and relevance is being judged as an emergency economic package when the world emerges from the lockdown.
Martin Luther King Jr. was of the opinion that guaranteed income plan would abolish poverty, which meant reduction in inequality as well. Economist Friedman proposed negative tax based on the income of the individuals falling below a minimum level.
While several countries like Canada, Finland, USA, Scotland and even India have had pilot surveys for the introduction of UBI, countries are however hesitant to legally implement it for the full country.
The UBI has several advantages, the primary being improving one’s well-being by providing financial stability. For example, in the survey carried out in Finland, the money provided was spent on healthcare, children could go to schools, the recipients had reduced stress levels. Some could even work on themselves when stability was guaranteed and not settle for meagre-paying jobs.
Other micro level advantages of UBI are- citizens having straightforward and simple financial assistance which had lower bureaucracy, chance to pursue hobbies or do what they are passionate about, up-skill themselves and get better opportunities for employment. It would increase the happiness and productivity of the individuals too.
Speaking at the macro level, the advantages are as follows. The poverty trap could be overcome and welfare of the society shall be achieved. The government would save on administration costs if a uniform plan was announced. The payments could also help to stabilize the economy in periods of recession.
However, the disadvantages have been the barriers for the countries in implementation of the scheme. Firstly, inflation in the economy is one of the threats. Increase in income would lead to increase in demand for goods and services, supply would increase only to a certain level and after that the demand- supply mismatch would be balanced by increase in prices which would continue for months and cause inflation. Secondly, the removal of poverty or improved standard of living is a short run phenomenon as in the long run inflation would make goods and services costly and not affordable for the recipients once again. Thirdly, free income may make people lazy and act as an disincentive to work, making it seem optional. Fourthly, in times of pandemics, people spend less on consumption but save more for contingencies. In such a case, consumption expenditure is less than expected and through multiplying effect, the Gross Domestic Product (GDP) of the country doesn’t rise as expected.
There are problems in the execution of the plan as well. It becomes difficult to determine who would get the direct income. Ensuring equality would affect equity. Again, if say the individuals with lowest 30% income band get to avail this then the 31st % would be deprived of same. It is also important to lay out who gets how much. States like California, Finland, Taiwan decided to give it family-wise whereas Canada had separate monthly incomes for individuals and couples. In India, it was surveyed only in Madhya Pradesh back in 2010 which had a positive effect. One needs is to determine the tenure of the scheme as well and once discontinued, its repercussions.
Economists Debraj Ray and Kalle Moene propose the UBI to be spent as a part of the Gross Domestic Product (GDP) of a country only and may range from 10-12% of the GDP.
Economic Advisor of India, Krishnamurthy Subramanian, is of the view that if UBI is to be introduced then all other subsidy schemes have to be removed and also believes that UBI is only a theoretic idea. However other economists like Raghuram Rajan, Abhijeet Banerjee and Esther Duflo are in support of this to tackle the current crisis and protect the poor lest they die of starvation.
It is somewhat the citizen’s responsibility to make full use of the UBI and avail it to their full benefit, up-skill themselves, think of creating jobs, and not just sit back and relax when there are opportunities. But in times of crisis like now, it would mostly be used to have two square meals a day. The correct time for the introduction of the economic reform, Universal Basic Income, if at all, is now.
Article by- Samriddhi Nahata
Literary sources-
- The Balance https://www.thebalance.com/
- The Hindu https://www.thehindu.com/opinion/op-ed/
- Down To Earth https://www.downtoearth.org.in/blog/
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