The idea of universal basic income (UBI) is not restricted any more to Silicon Valley bigwigs or Western Europe’s social democrats. The concept is fast gaining traction among economists all over the world, including the global south. Fed up with the lack of effectiveness of traditional poverty alleviation schemes, wasteful subsidies and the incompetency of welfare bureaucracies, many development economists are now toying with the idea of UBI to address frequent income shocks, job losses and other such periodic challenges. The idea seems to be gaining ground in India’s policy circles as well as the country is ready with e-Aadhaar for direct benefit transfers and income transfer trials.

UBI found a prominent place in the Finance Ministry’s Economic Survey 2016-17, which made a strong case for transferring benefits directly into the Aadhaar-linked accounts of specific individuals. While the concept is still being debated in India, some countries in Western Europe and North America have had pilot runs. For example, Finland and the Netherlands took the plunge to provide monthly cash transfers to unemployed individuals. Recently, Canada announced a similar experiment in certain regions facing economic shocks. Switzerland held a referendum on a proposal to transfer 2,500 Swiss francs per month to every adult citizen. The concept is being vigorously debated in many states of the US as the country is grappling with job losses due to automation.

The concept

Like numerous constitutional rights, UBI is a citizen’s unconditional (meaning one need not have to prove his/her status of employment or income) and universal right to have a basic income to meet his/her needs periodically. In its current avatar, UBI has three key components - universality, unconditionality and agency. Its proponents in India, especially the authors of the Economic Survey, argue that poverty and vulnerability of the poor such as farmers, informal labourers or low-skilled workers can be addressed effectively by transferring a guaranteed minimum income. They argue that limited unconditional cash transfers in countries such as Zambia and Pakistan targeted at vulnerable groups have resulted in better development outcomes.

The advantages

The scheme’s proponents argue that unlike in-kind transfers, which treat individuals as ‘objects’, unconditional cash transfers would turn them into ‘agents’ as it would entrust them with the responsibility of spending their money more effectively. This is one way of putting the onus on individuals than the bureaucracy controlling these development processes, which often bring bizarre outcomes.

Second, a basic and guaranteed income that covers everyone (thereby eliminating exclusion error that is common in welfare programmes) goes on to provide a safety net against job loss, fall in income, health issues and other such conditions that can overwhelm an individual. Thus, UBI can act as a capacity enhancing tool for needy citizens. Importantly, it can dramatically enhance the bargaining power of individuals to negotiate better wages and decent working conditions.

Third, UBI would promote financial inclusion by bringing more people into the banking system through direct transfers. Further, it would help beneficiaries to become part of the formal credit system. Importantly, as evident empirically, it can promote efficiency and cut down leakages in government transfers.

Fourth, UBI has transformative potential as it empowers individuals to spend money in ways that they would like. Further, such income transfers enhance economic liberty at an individual level as it provides the people with the choice of not engaging in unproductive work for meeting their daily needs. In doing this, it improves their bargaining power.

Finally, UBI can help in promoting equitable distribution of wealth. In fact, equity and productivity are two driving factors that is pushing a number of governments in Western Europe and North America to experiment with the income transfer concept.

The disadvantages

While UBI may be a great idea to eradicate poverty and protect citizens from the vagaries of job loss, health conditions and other such challenges, the scheme has plenty of challenges and pitfalls. First and foremost is the fiscal capacity or the quantum of resources required to implement such a mega scheme involving a huge sum of money. Take the case of India. As per the Economic Survey estimate, an annual UBI of Rs 7,620 would require around 5 per cent of the GDP. Can India afford such a mammoth exercise even if it merges many existing welfare schemes in it?

Second, it would be politically infeasible to roll back existing welfare schemes for UBI. In a democracy, such moves will create a political backlash among the government’s core support base apart from galvanising Opposition parties to target the government. Chances are aplenty that UBI may end up becoming an add-on scheme to existing subsidies. Further, considering the competitive politics in which political parties do everything to improve their electoral fortunes, there will be strong incentives to increase the UBI amount at the risk of fiscal imbalance.

Third, UBI has all the potential to create labour market distortions. Not only free money will make people lazy and dependent, such guaranteed income without any regular work would affect labour mobility, which in many ways can push wages. This phenomenon has been observed in the case of the Mahatma Gandhi National Rural Employment Guarantee Act. Farmers complain that the job scheme has led to a spike in rural wages and shortage of labour during agricultural seasons.

Finally, given that these transfers are unconditional, it is extremely difficult to ensure that the additional income will be spent by recipients on health, education and other human capacity enhancing fields. As the experience from other cash transfer programmes show, the additional income may be spent on alcohol, tobacco and other such conspicuous consumption. Further, under  India’s prevalent gender norms, money transferred to a household will eventually go to male members, thus may not be spent equitably enough to impact women’s lives.

UBI and democratic politics

Persistent agrarian crisis and falling rural income mean there are many takers for UBI in India. While a prominent section of the intelligentsia backs the idea for specific groups such as farmers and informal workers, there are those who make a strong case for its universal application. For instance, former chief economic adviser Arvind Subramanian - a key architect of the Economic Survey 2016-17 - favours UBI only for the poor.

The concept has gained currency in recent months, especially after the Telangana government introduced the Rythu Bandhu scheme for farmers last year. Many analysts credit the Telangana Rashtra Samiti’s sweeping victory in last month’s Assembly polls to the new scheme. The electoral success of TRS is now pushing many other states to come up with their versions of UBI. Recently, the Naveen Patnaik-led Odisha government unveiled a scheme called KALIA to provide income support to farmers. As the general election looms large, UBI is under active consideration of the Narendra Modi-led NDA government. In short, UBI has become a buzzword for electoral politics and one may see the important public policy issue gaining importance in the crucial election year.

Niranjan Sahoo is a senior fellow at Observer Research Foundation, New Delhi. He is a public policy and governance expert. The views expressed here are personal.