What is the issue?

• The idea of a universal basic income (UBI) is gaining ground globally.
• Here is an evaluation of its necessity, target group and possible outcome in India.

Should it necessarily be universal?

• Millions of people remain unemployed and are extremely poor, despite rapid economic growth.
• A UBI thus requires the government to pay 'every citizen' a fixed amount of money on a regular basis and without any conditionalities.
• But it is to be understood that the UBI is neither a remedy to the uncertainty with the market forces nor a substitute for basic public services, especially health and education.
• Besides, there is less need for transfer money to middle- and high-income earners as well as large landowners.
• With limited fiscal space for direct income support, it will thus have to be restricted to the poorest of poor households.
• In this context, there is a strong case for groups such as the landless labourers, agricultural workers and marginal farmers who suffer from multi-dimensional poverty.

Why do these groups need income support?

• These are the groups that have not benefited from the economic growth in the past three decades.
• They were and still are the poorest Indians, and various welfare schemes have also failed to bring them out of poverty.
• One issue is that the access to institutional credit issued by banks and cooperative societies is highly imbalanced.
• Institutional credits account for less than 15% of the total borrowing by landless agricultural workers, and 30% for marginal and small farmers.
• These groups have to borrow from moneylenders at exorbitant interest rates ranging from 24 to 60%.
• As a result, they do not stand to benefit much from the interest rate subsidy for the agriculture sector.
• Likewise, the benefits of subsidised fertilizers and power are enjoyed largely by big farmers.
• In urban areas, contract workers and those in the informal sector face a similar problem.
• The rapid pace of automation of low-skill jobs and formalisation of the retail sector has made the prospects of these groups even weaker.

How will it help them?

• Livelihood - An income support of, say, Rs. 15,000 per annum can be a good supplement to their livelihoods.
• This additional income can reduce the incidence of indebtedness among marginal farmers and thereby help escape from moneylenders.
• Basic income can help bring a large number of households out of the poverty trap or prevent them from falling into it.
• Health and education - Several studies have shown that at high levels of impoverishment, even a small income supplement can improve nutrient intake.
• It is also likely to increase enrolment and school attendance for students coming from poor households.
• Notably, transfer of money into the bank accounts of women of the beneficiary households would have a better result in health and education of children.
• In other words, income transfers to the poor will lead to more productive workforce with improved health and educational outcomes.
• Employment - The income support suggested above is not too large to discourage people from working.
• In fact, it can actually promote employment and economic activities.
• E.g. the income can work as interest-free working capital for several categories of beneficiaries like the fruit and vegetable vendors and small artisans

• Moreover, an overall boost in spending will increase demand and promote economic activities in rural areas.
• With income support and thereby better education and health, basic income might reduce income inequalities.

How are public services still significant?

• An income transfer scheme cannot be a substitute for universal basic services.
• The income support to the poor will deliver the benefits only if it comes on top of public services such as primary health and education.
• This means that direct transfers should not be at the expense of public services for primary health and education.
• Budgetary allocation for these services should be raised significantly.
• Programmes such as the Mahatma Gandhi Rural Employment Guarantee Scheme should also stay for some time.

How to meet the fiscal requirement?

• With rough estimation of the number of eligible households to be 10 crore, the scheme will require approximately Rs. 1.5 lakh crore per annum.
• The PM-KISAN Yojana can be aligned to meet a part of the cost.
• Nonetheless, the required amount is beyond the Centre’s fiscal capacity at the moment and so the cost will have to be shared by the States too.