The idea of a universal basic income (UBI) for citizens is being discussed in many developed countries. While several economists have favoured such a proposal, it has now also caught the attention of policymakers in several European nations.
A proposal for UBI in Switzerland was defeated in a referendum, but this has not deterred other countries. The Netherlands and Finland are set to start a pilot project from 2017.
UBI is the subject of vigorous debates in France and other European Union countries. Not surprisingly, there is an ongoing debate in India as well. Several economists have supported this idea at seminars and in newspaper columns, including on the pages of this newspaper. So far, the response from the government has been lukewarm.
Essentially, UBI is a transfer by the state to all its citizens. In some ways, UBI is similar to a negative tax or subsidy but the appeal of the present push has been its universal approach. This in itself is a welcome step. After having unsuccessfully experimented with targeted public service delivery, there is now unanimity among policymakers as well as economists that the approach to public service delivery has not only failed to deliver the intended benefits but has also led to an increase in corruption and leakage.
While there is unanimity on adopting a universal approach, the basic approach behind UBI is different in the context of developed countries and developing countries such as India. The basic difference lies in the fact that for most European countries, the idea of UBI is complementary to the existing architecture of public service delivery and social safety nets. In most of these countries, particularly the Nordic nations, the idea of a welfare state is well established with universal public access to basic services such as nutrition, education and health. These countries also have social safety nets for workers, including minimum wage regulations and unemployment benefits, and UBI is another step towards strengthening them. In most of these countries, the arguments in favour of UBI have been driven by the rising unemployment and widening inequality of incomes.
However, in developing countries, UBI has been justified to a large extent because of the perceived failure of the delivery mechanism. UBI is seen as a substitute for the provision of existing public service delivery.
Such arguments were also made during the debate on the National Food Security Act (NFSA). For many, UBI is just an extended version of the direct benefit transfer (DBT). In that sense, the argument for a universal basic income is essentially a move towards cash transfers in place of in-kind transfers. Much of the literature in this regard has clearly established that the problem with existing in-kind transfers is not the form of transfers but the targeting, which leads to leakages and corruption. States that have expanded coverage to universal and quasi-universal were successful in eliminating corruption and leakages to a large extent. It was this evidence which convinced Parliament to adopt a quasi-universal approach to the NFSA instead of the targeted approach earlier. Moreover, the evidence was also conclusively in favour of in-kind food transfers being more effective than equivalent cash transfers as far as nutritional outcomes are concerned. Clearly, the issue is not just cash versus in-kind and universal versus targeted, but the approach to public service delivery in a welfare state.
The issue in India is not just access to cash but also the supply and accessibility of basic services to a large majority of the population. There are a number of cash transfers, including scholarships and social pensions, that are currently being given by central and state governments. The reason these have not led to commensurate improvements in educational, health and nutritional outcomes has been the lack of basic infrastructure. Given the huge deficits in availability of public education and health facilities, UBI can only increase the demand for these services without increasing the access to these services. While dependence on private providers may fill the gap in the long run, it does not absolve the state from providing universal provision for these services. It will also not solve the problem of self-selection inherent in most of the in-kind transfers, including the public distribution system and the Rural Employment Guarantee Act.
Clearly, the idea of UBI, however appealing, can only contribute to better social and human development outcomes if there is adequate provision of basic social services.
The idea of UBI is over and above the basic provision of public services by the state. This has been the model in Europe and this has also been the model in Latin American countries where conditional cash transfers have shown improvements in outcomes. These have essentially been used as a social safety net to allow those who fall through the gap to access basic services. The challenge for the Indian government is to first improve the availability of public services with better access and delivery of these services to the citizens. UBI cannot be a substitute for the government’s commitment to providing universal basic services.
Himanshu is an associate professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.