Universal basic income won't solve unequal income distribution: Think tank

  • The introduction of the UBI is, thus, likely to hamper fiscal soundness, says a Pune based think tank
  • UBI is a framework providing minimum economic security to all citizens

After the Congress party announced its plan to implement a quasi universal basic income (UBI) scheme for the 5 crore poorest families if elected to power, a Pune based think tank headed by economist Vijay Kelkar charting out the public policy agenda for the next government has cautioned that implementation of such a scheme may hamper fiscal soundness and advocated for more emphasis on better delivery of public goods and services.

“There is always the risk of an unpopular government raising the payment per person. The introduction of the UBI is, thus, likely to hamper fiscal soundness, even if it is accompanied by removing all existing poverty programs and subsidies," the Pune International Centre in its report titled “Innovating India" for 2019-2024 said.

UBI is a framework providing minimum economic security to all citizens. It is considered as a negative income tax through which those getting less from engaging in economic activity are given some income support.

The question that begs to be asked is if there is sufficient investment and impetus to make the delivery mechanism fair and universal, the report said “The idea of UBI is seductive as it lures politics into the ghetto of pay and move on politics. The calls on the introduction of UBI must be preceded by creation of access to goods and services—an obligation no state can shy away from or hide behind a wall of money," the report added.

The report said UBI alone cannot tackle unequal income distribution. “The inefficiency in the system of providing public and quasi-public goods is the root cause of inequality. Therefore, with UBI, priority should also be given to increase the efficiency in creation and distribution of these goods. Through measures such as cuts in subsidies or rationalising other transfers the provision of public and merit goods can be enhanced," it added.

The think tank said the even deeper concern about the UBI is its permanency nature. “The foundations of economics teach us that redistribution should be a one-time task, after which the market process should work well. The UBI, in contrast, envisions redistribution should be one-time task, after which the market process should work well. The UBI, in contrast, envisions redistribution year after year, forever. It is worth asking what deeper problems there are, in the working of the market economy, and addressing them at the root cause," it added.

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