Background

Although an old idea, Universal Basic Income (UBI), in recent years has gained significant
momentum. UBI, in layman’s terms, can be defined as an unconditional monetary transfer by
the government to its citizens. The crippling economic structure attributed to Covid-19 has
brought this idea once again under the limelight as unemployment and financial hardship
spread across the globe. Often the transfer figure matches the poverty line, reducing the
portion of people below the poverty line almost instantly. Supporters believe that UBI has the
potential to grease the wheels of the economy while increasing the demand side consumption
and decreasing the growing inequality.

Alaska has been following such a program since 1982 where every resident, including
children, gets $1,000 to $2,000 a year. The Alaska Permanent Fund paid each resident an
average of $1,606 in 2019, all out of oil revenues and it was found that three-fourths of
recipients save it for emergencies.

Meanwhile, in 2010, the government of Iran started a UBI trial, that transferred citizens
around 30% of the median income every month. It was observed that poverty and inequality
reduced. Additionally, people used it to invest in their businesses that led to the growth of
small enterprises.

In India, the idea of UBI appeared with the 2016-17 Economic Survey. The survey outlined a
design for a ‘quasi’ UBI, suggesting ₹7,620 per year to 75% of the population. According to
Carnegie India, for the aforementioned transfer amount, the cost of this quasi-universal basic
income would be around 4% of India’s Gross Domestic Product ( GDP ).

Private consumption, investments, government expenditure, and net exports- imports are the
leading indicators through which an economy’s GDP is calculated. In India’s case, private
consumption contributed to around 60 % of its GDP. Hence, a steep fall in consumption,
attributed to a loss of wages during the lockdown imposed to contain the contagion, has been
a worrying sign. A report by International Monetary Fund projects global growth in 2020 to
be pegged at -3.0%, the worst since the Great Depression. In the midst of a consumption
slump, India is projected to grow at 1.9%. To revive the economy, and get production back
on track, economists have time and again spoken about the need to deliver the money directly
into people’s hands and UBI can be one potential tool through which this can be done.
However, it must be noted that if the government tends to such an approach, a concomitant
increase in production must take place. If a section of citizens receives a basic income, it
would instantly spring up the demand, increasing inflation. In the present scenario, a small
rise within the window of controllable inflation will be favorable; however, if authorities
aren’t able to assure an increased supply, higher prices would again make the essentials
unaffordable to those at the bottom of the income pyramid.

Challenges
Implementation at a large scale will always be a mammoth challenge. A clear definition of
people eligible under the ‘quasi-UBI’ will be necessitated. Corruption and malpractices have
time and again hollowed government policies drafted to benefit the poor. Subsidies designed
for the needy end up being usurped by the rich whereas Jan Dhan Accounts experienced high
activity right after demonetization. Moreover, even after identification, getting money into
people’s hands can be an arduous task. Despite a push to increase financial penetration by
ramping up Jan Dhan Yojana accounts, usage of these bank accounts has remained
significantly low. World Bank’s World Findex Survey noted a prominent rift between the
opening of such bank accounts and actual usage. Hence, not only identification but efficient
and transparent delivery of such cash transfer into the hands of the needy will also have to be
checked.

While a push of money directly into the hands of the needy at this time of economic slump may
definitely churn the consumption, a continuous transfer even has the potential to inflate the
economy and raise inflation if supply is not increased. Hence, the government will have to be
watchful of production lest what may be a guaranteed income for people; it would not raise
their standard of living.