Article on ‘UNIVERSAL BASIC INCOME’ by CS Venkat R. Venkitachalam, Chairman, Bizsolindia Services Pvt. Ltd. (July 2023)

Mr. Venkatramanan Anantha Nageswaran  is the Chief Economic Advisor (CEA) to the Government of India. Though his name is a mouthful, Nageswaran is generally known as a man of few words.  However, he has the ears of all those who matter in the government, being an expert in the voodoo science in the country, if only one could call economics a science!  Nageswaran is the co-founder of the Aavishkaar India Micro Venture Capital fund, a pioneer in impact investing, and the Takshashila Institute, a think tank for research and education in Public Policy. He was a part time member of the Prime Minister’s Economic Advisory Council from 2019 to 2021. Someone with that kind of credentials gives an opinion on economic matters, fellow countrymen like us must sit up and take note, especially since he is not one known to making flippant statements nor has, he the luxury of making them and get away with it, the way we do.  Recently he made a statement that Universal Basic Income (UBI) was not necessary for India since natural economic growth would take care of the country’s aspirations.  He opined at an interaction with the representatives of the Confederation of Indian Industries (CII) that introduction of such a Scheme would lead to creating ‘perverse incentives’ thereby dissuading people from seeking income generating opportunities. Further, he emphatically stated that “For our country, when natural economic growth should take care of many of the aspirations, UBI may not be necessary. So therefore, universal social security for India is not something that should be on the agenda in the near term,” according to Nageswaran. He further observed that “India has not reached the stage where it is a moral or economic necessity to have universal social security. For a developed country, which doesn’t have income-generating opportunities and employment-generating opportunities, the state may have to step in and provide the universal basic income kind of coverage”.  However, another famous economist of international repute who was the CEA during the first term of the NDA government, Arvind Subramanian, had a different take on this subject.  He had mooted the idea of universal basic income to the citizens. In the Economic Survey of 2016-17, he advocated UBI to cover every citizen’s basic needs as it is easier to administer compared with the many existing anti-poverty programmes.  In the survey, Subramanian said that the Central government alone ran 950 central sector and centrally sponsored sub-schemes which cost about 5 per cent of GDP. Observing that there may be intrinsic limitations in the effective targeting of schemes, he argued that serious consideration be given to the idea of UBI, which may be an effective way of achieving Mahatma Gandhi’s objective of “wiping every tear from every eye.” Obviously Nageswaran did not agree with Subramanyan thereby proving once again that no two economists agree on one uniform course of action to alleviate poverty in the country. It is necessary, therefore, for us ordinary citizens to decipher the concept of UBI for our own understanding. UBI is considered by many as a possible solution to the looming crisis of jobless growth in the economy. In fact, the need for such a mechanism to extend benefits to the poor was felt acutely during the recent Covid pandemic.

Increased interest in UBI is partly attributable to our ability to implement such an ambitious plan based on the success of Direct Benefit Transfer (DBT) and our tryst with the UPI infrastructure for payments to a large number of people.  Universal Basic Income is a socio-political financial arrangement which ensures that all citizens of the country receive a pre-determined sum of money at pre-determined intervals.  These payments are made without any conditions except for the fact that the people receiving such doles must be citizens of the country and the amount of handout must cover their basic needs.  The previously referred Economic Survey of India of 2016-17 championed the cause of the UBI very effectively.  The Survey had these powerful words to justify UBI – “it liberates citizens from paternalistic and clientelist relationships with the state”.  It is also no secret that the current system of payments is riddled with corruption, inefficiency and leakages resulting in colossal national wastage.  After all, the bill for such doles are picked up by the government of the day.  Rajiv Gandhi, former Prime Minister of India had once famously claimed that only 15% of the money spent by the government reach the intended beneficiaries.  That in one sense is scandalous to say the least.  Now let us look at the concept of UBI itself and see if it provides the solutions that we are seeking, particularly because the economic arguments in support of the proposal are both logical and compelling.

Broadly, these are the perceived advantages of UBI:

  1. The most important advantage of UBI is that it promotes the basic value of equality of all citizens irrespective of their caste creed or financial capabilities.
  2. There are few other ways in which any administration can hope to reduce wastages associated with social welfare schemes since multiple State and Central machineries are involved in the distribution chain to ensure that the poor get what they deserve.
  3. The inefficiencies, corruption and leakages plaguing the present archaic system can be eliminated with the new mechanism as the latter is simpler and transparent.
  4. An assured income every month will also ensure the family of every citizen can live free of avoidable tensions and uncertainties.
  5. It frees the labour force and reduces their anxieties at those crucial times of job losses and job changes. This could even help them to find jobs more commensurate with their abilities and qualifications.
  6. Freedom and flexibility for those who must take care of elderly and sick relatives and for those who must do baby-sitting because of family circumstances.
  7. It provides the much-needed escape route to the citizens from what is called “poverty traps.” It is in fact incumbent on the government to help its citizens from such contingencies.
  8. India can confidently approach a UBI initiative without major fears of leakages in the system because of its prior experience in successfully implementing monetary transfers to the targeted beneficiaries.

On the other hand, here are some of the disadvantages while implementing a scheme under UBI:

  1. Free handouts could work against the economic development of the individual, society and the country. It may even habituate the population to live without working, affecting the overall development of the country’s growth.
  2. Over a period of time, such systems will end up in perpetuating falling labour force participation in economic development and nation building. This may even result in the labour force becoming indolent.
  3. By its very design part of the handouts are bound to end up with unintended beneficiaries making even the wealthy getting habituated to live on government handouts. Once introduced, it would be difficult roll back such an initiative resulting higher expenditure to the government.
  4. Particularly in a developing country like India universal entitlement of such largesse would result in money being handed out even to those who do not deserve it because of their economic status in addition to worsening the already existing rich-poor gap.
  5. There are chances that amounts given out as benefits could spur conspicuous consumption thereby leading to undesirable consequences. Money not earned has no intrinsic value for people and there is no guarantee that it would get spent for productive or welfare purposes.
  6. The free handouts and the regularity of such receipts from the government would subtly convert a citizen from a rightful claimant to a willing supplicant.
  7. For this system to be successful, a minimum understanding and cooperation between the Centre and States is a must. That appears to be a major challenge given the state of relationship between the States and the Centre as of today.

Universal basic income is a concept that proposes provision of a guaranteed, unconditional income to every citizen within a given jurisdiction, regardless of their employment status or income level. The idea behind UBI is to ensure that everyone has a minimum level of financial security and is able to meet his or her basic needs. Proponents of UBI argue that it can address poverty, income inequality, and the potential job displacement caused by automation and technological advancements. They believe that providing a basic income floor would empower individuals to pursue education, training, entrepreneurship, or creative endeavours, leading to a more innovative and equitable society.  On the other hand, critics of UBI raise concerns about its cost and potential disincentives to work. They argue that implementing UBI on a large scale could require substantial tax increases or budget reallocations, and it may discourage individuals from seeking employment or pursuing higher-paying jobs if the basic income is sufficient to cover their needs.  UBI has been a topic of debate in many countries and has been experimented with, in various pilot programmes and trials. While some trials have shown positive outcomes, it remains a complex and multifaceted issue with differing perspectives on its feasibility and long-term implications.  Ultimately, people’s opinions on UBI vary widely, influenced by their political, economic and social beliefs. The effectiveness and desirability of UBI, therefore, continue to be the subjects of ongoing research, discussion, and experimentation around the world.

Having seen the theoretical advantages and disadvantages of implementing UBI, it is now time to decide whether we can conclude that we are better off without it or that it is time that we implement it in right earnest. UBI has been in the works as a Seminar or Workshop topic in India in the academic world for quite some time now.  As a concept it is so logical that you find it difficult to reject it outright.  However, it is so nebulous, that one cannot recommend it for implementation as can be seen from the above discussion. The reason why one cannot recommend the implementation or otherwise is that any nation implementing it would be as pioneer spearheading a novel idea. There are inherent dangers in being a pioneer.  A failure of an initiative of this kind could prove to be disastrous for the economy.  No country in the world has implemented it so far, except as some kind of pilot projects here and there. Iran is a pioneer to some extent.   Who would want to implement a reform whose results are so uncertain and when there are few previous experiences to emulate?  The above discussion covers the effect of UBI on society based on pure punditry based on some economic principles. It does not cover the political dimension of the subject. That is where the problem is.  The consequences of failure of the Scheme would be too difficult to handle especially in a developing country like India.  The closest that anyone in India has come to the subject was when ahead of the 2019 Lok Sabha elections, the Congress Party made a promise of a minimum income support programme called Nyuntam Aay Yojana or NYAY under which Rs 72,000 would be transferred to the poorest 20 per cent or 5 crore families in the country.  With the Congress biting the dust, there appears to be no one to take the lead at least as of now.  UBI has been a topic of debate in many countries as well and it has been experimented with in various pilot programmes and trials. While some trials have shown positive outcomes, it continues to remain a complex and multifaceted issue with differing perspectives on its feasibility and long-term implications. Ultimately, people’s opinions on UBI vary widely, influenced by their political, economic, and social beliefs. The effectiveness and desirability of UBI continue to be subjects of ongoing research, discussion, and experimentation around the world.  Its implementation has been explored in various pilot programs and experiments in different parts of the world. While there is no large-scale implementation of UBI to date, these smaller-scale initiatives provide some insights into its potential effects. Here are a few examples:

  1. Finland conducted a two-year UBI experiment where 2,000 unemployed individuals received a monthly basic income without any conditions. The preliminary results showed that participants experienced less stress and had better well-being and mental health. However, the experiment did not lead to a significant increase in employment levels.
  2. Alaska has a longstanding program known as the Permanent Fund Dividend (PFD). It provides an annual cash dividend to all eligible residents, funded by the state’s oil revenue. The PFD is often cited as an example of a partial UBI implementation. While it has helped reduce poverty rates and contributed to the state’s economy, Alaska’s programme is not a comprehensive UBI as it is tied to resource revenues.
  3. From 2008 to 2009, Namibia implemented the BIG pilot project in several rural villages. The project provided a basic income to eligible residents. The results showed that the BIG had positive impacts on nutrition, health, education, and entrepreneurial activities. It also helped reduce poverty and inequality within the pilot communities.
  4. Give Directly, a nonprofit organization, conducted a UBI experiment in Kenya from 2016 to 2019. They provided a basic income to over 20,000 individuals in rural villages. The results indicated that the recipients experienced improvements in income, economic activities, and well-being. They also reported spending the money on essential needs, health expenses, and education.

These examples illustrate that UBI experiments have shown some positive outcomes, such as improved well-being, reduced poverty, and increased economic activity. However, it’s important to note that these experiments were relatively small-scale and conducted within specific contexts. Implementing UBI on a larger scale could present different challenges and require careful consideration of funding mechanisms, economic impacts, and social dynamics. Further research and analysis are needed to fully understand the long-term effects of UBI and its potential as a policy solution.  From the above trial projects, it is clear that the potential success or failure of UBI is far from certain though the concept appears to be sound.  That, however, is no assurance to a politician wanting to try this pathbreaking social engineering proposal around the country. For a developing nation like India, it will need a lot more certainty about the unqualified success of the proposal. The most important lesson for both Nageswaran and Subramanian is that initiatives under UBI are not just social or economic projects.  They are also not just social or economic concepts but are essentially political ones.


Thank you.

Venkat R Venkitachalam

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