UNIVERSAL BASIC INCOME, UBI, SCHEME – Bonfire of the Subsidies

Dr Rajinder Singh Bawa

Dr Gurusharan Singh Kainth


Basic income (also called Unconditional Basic Income, Citizen’s Income, Basic Income Guarantee, Universal Basic Income or Universal Demogrant) is a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere. An unconditional income transfer of less than the poverty line is sometimes referred to as a Partial Basic Income. Basic income systems that are financed by the profits of publicly owned enterprises (often called social dividend or citizen’s dividend) are major components in many proposed models of market socialism. Basic income schemes have also been promoted within the context of capitalist systems, where they would be financed through various forms of taxation. Similar proposals for “capital grants provided at the age of majority” date to Thomas Paine’s Agrarian Justice of 1795, there paired with asset-based egalitarianism. The phrase “social dividend” was commonly used as a synonym for basic income in the English-speaking world before 1986, after which the phrase “Basic Income” gained widespread currency. Prominent advocates of the concept include Philippe Van Parijs, Ailsa McKay, André Gorz, Hillel Steiner, Peter Vallentyne, and Guy Standing.

Socialist and left-wing economists and sociologists have advocated a form of basic income as a means for distributing the economic profits of publicly owned enterprises to benefit the entire population (also referred to as a social dividend), where the basic income payment represents the return to each citizen on the capital owned by society. These systems would be directly financed out of returns on publicly owned assets and are featured as major components of many models of market socialism. Erik Olin Wright characterizes basic income as a project for reforming capitalism into a socialist system by empowering labor in relation to capital, granting labor greater bargaining power with employers in labor markets, which can gradually decommodify labor by decoupling work from income. This would allow for an expansion in scope of the “Social Economy“, by granting citizens greater means to pursue activities (such as the pursuit of the arts) that do not yield strong financial returns. Other theorists leaning towards different kinds of socialism who have advocated basic income, include James Meade, Bertrand Russell, Frances Fox Piven and Harry Shutt.

Meade states that a return to full employment can only be achieved if, among other things, workers offer their services at a low enough price that the required wage for unskilled labor would be too low to generate a socially desirable distribution of income. He therefore concludes that a citizen’s income is necessary to achieve full employment without suffering stagnant or negative growth in wages. He advocated for a social dividend scheme to be funded by publicly owned productive assets.

Russell argued for a basic income alongside public ownership as a means to decrease the average length of the working day and to achieve full employment.

Fox Piven holds the view that an income guarantee would benefit all workers by liberating them from the anxiety that results from the “tyranny of wage slavery” and provide opportunities for people to pursue different occupations and develop untapped potentials for creativity.

Gorz saw basic income as a necessary adaptation to the increasing automation of work, but also a way to overcome the alienation in work and life and to increase the amount of leisure time available to each individual.

Harry Shutt proposed basic income along with reforms to make all or most of the enterprises collective in nature, rather than private. Together, he argued, these measures would constitute the make-up of a post-capitalist economic system.

Geolibertarians seek to synthesize propertarian libertarianism and a geoist (or Georgist) philosophy of land as unowned commons or equally owned by all people, citing the classical economic distinction between unimproved land and private property. The rental value of land is produced by the labors of the community and, as such, rightly belongs to the community at large and not solely to the landholder. A land value tax (LVT) is levied as an annual fee for exclusive access to a section of earth, which is collected and redistributed to the community either through public goods, such as public security or a court system, or in the form of a basic guaranteed income called a citizen’s dividend. Geolibertarians view the LVT as a single tax to replace all other methods of taxation, which are deemed unjust violations of the non-aggression principle.

Support for basic income has been expressed by several people associated with right-wing political views. While adherents of such views generally favor minimization or abolition of the public provision of welfare services, some have cited basic income as a viable strategy to reduce the amount of bureaucratic administration that is prevalent in many contemporary welfare systems. Others have contended that it could also act as a form of compensation for fiat currency inflation.

Feminists’ views on the basic income can be loosely divided into two opposing views: which supports basic income, seeing it as a way of guaranteeing a minimum financial independence for women, and recognizing women’s unpaid work in the home; and another view which opposes basic income, seeing it as having the potential to discourage women from participating in the workforce, and to reinforce traditional gender roles of women belonging in the private area and men in the public area.

Concerns about automation and other causes of technological unemployment have caused many in the high-tech industry to turn to basic income proposals as a necessary implication of their business models. Journalist Nathan Schneider first highlighted the turn of the “tech elite” to these ideas with an article in Vice magazine, which cited figures such as Marc Andreessen, Sam Altman, Peter Diamandis and others. The White House, in a report to Congress, has put the probability at 83per cent that a worker making less than $20 an hour in 2010 will eventually lose their job to a machine. 31 per cent Workers too face odd who makes as much as $40 an hour.


A Commission of the German Parliament discussed basic income in 2013 and concluded that it is “unrealizable” because:

  • it would cause a significant decrease in the motivation to work among citizens, with unpredictable consequences for the national economy
  • it would require a complete restructuring of the taxation, social insurance and pension systems, which will cost a significant amount of money
  • the current system of social help in Germany is regarded more effective because it’s more personalized: the amount of help provided is not fixed and depends on the financial situation of the person; for some socially vulnerable groups the basic income could be not sufficient
  • it would cause a vast increase in immigration
  • it would cause a rise in the shadow economy
  • the corresponding rise of taxes would cause more inequality: higher taxes would translate into higher prices of everyday products, harming the finances of poor people
  • no viable way to finance basic income in Germany was found

Some economists have expressed concern about the basic income. Daron Acemoğlu who has expressed uncertainty about his views on basic income has stated “Current US status quo is horrible. A more efficient and generous social safety net is needed. But UBI is expensive and not generous enough.” Eric Maskin has stated that “a minimum income makes sense, but not at the cost of eliminating Social Security and Medicare.” The Economist notes that raising the income floor would have no impact on the wealth gap. While cash transfers would make the most difference to those on the bottom of the pile, they posit it would be instead of existing welfare benefits.


Generally the discussion on basic income developed in Europe in the 1970s and 1980s, partly inspired by the debate in United States and Canada somewhat earlier, and has since then broadened to most of the developed world, to Latin America, Middle East, and to at least some countries in Africa and Asia. The Alaska Permanent Fund is regarded as one of the best examples of an existing basic income, even though it’s only a partial basic income. Other examples of existing basic income, or similar welfare programs, include the partial basic income in Macao and the basic income in Iran. Basic income pilots, such as Mincome, have been conducted in United States and Canada in the 1960s and 1970s, Namibia (from 2008) and in India (from 2011). In Europe there are political decisions in France, Netherlands and Finland to start up some basic income pilots. Voters in Switzerland strongly defeated a referendum on the topic in 2016 with 77 per cent voting against the proposal. However, 2016 poll showed that 58 per cent of the European people are aware about basic income and 65 per cent would vote in favor of the idea.

India Network for Basic Income conducted pilots in some villages in Madhya Pradesh for a UBI scheme. For 12-17 months, over 6,000 individuals received small unconditional monthly cash transfers, or grants under the two pilots. The central design premise of the pilot was that the basic income was paid every month, to all individuals within a village. Every individual registered as a usual resident at the launch of the project received the income, the only requirement being that they opened a bank account within three months of the launch. Transfers for children under the age of 18 went to the mother or, if there was no mother, a designated guardian.

The pilots found that those who received basic income reported a significant increase in their food sufficiency six months into the intervention. Receipt of basic income had a significant impact on children’s nutrition, particularly nutrition levels of female children and children from vulnerable groups such as the Scheduled Tribes. Basic income improved capacity of households to buy from the market, resulting in a qualitative shift in their food basket; but more money did not result in more expenditure on alcohol.

The starting point for such a scheme would depend upon resources. Desirability of the (UBI) scheme should be established first, even though it can be done in phases. In the Indian context, a universal basic income has to be examined in the context of the fact that one already has a rural employment guarantee scheme, which is being implemented but has huge leakages. There is public distribution system being implemented, but again is riddled with corruption.


In India, there are lots of subsidies which constitute a large portion of GDP. There are hundreds of poverty alleviation programmes, from housing to food, from maternity benefits and child-welfare to old-age support. Name a need; add a politician’s name or a government title before it and the word Yojana after, and you could very well be naming a real government scheme aimed at the poor. 

During 2016-17, the Centre has estimated its expenditure on subsidies at Rs 2.5 lakh crore. The largest chunk of Rs 1.34 lakh crore has been estimated as food subsidy for the year, while Rs 70,000 crore is the estimated subsidy for fertilizers. Petroleum products accounted for another Rs 26,947 crore, which include Rs 19,802.79 crore for subsidy on LPG and Rs 7,144.21 crore for kerosene subsidy. The government also planned to provide Rs 15,000 crore as interest subvention subsidy for providing short term credit to farmers. These are the main subsidies currently provided by the government. Apart from these subsidies, the government allocated another Rs 38,500 crore for the flagship MGNREGS (Mahatma Gandhi National Employment Guarantee Scheme). Besides, fossil fuels subsidies are large but do not directly go to the poor. NREGA and other welfare schemes do not work very well and cost much more. PDS in large part of India, many people do not receive it. PDS should be replaced, it is inefficient. But it should be done in phases, not in one go.

Anti-poverty programmes are also a key element of the Budget proposals this year. The emphasis on providing rural employment through the MGNREGS continues, as has been the case for the past few budgets. This is a scheme launched by the previous government but appropriated and made its own by the NDA. The MGNREGS has been given it’s highest-ever allocation of Rs 48,000 crore to help small farmers and migrant labourers. Lifting one crore households out of the poverty is the target of the new Mission Antyodaya aimed at Dalits, tribal’s and the underprivileged sections of society. 

While their performances across the country vary, it is impossible to deny that these schemes are beset with problems that limit their effectiveness. First, there is the problem of eligibility. Often, those who should not be getting a benefit, get it (inclusion errors), while those who should be getting it, don’t get it (exclusion errors). Second, there is the problem of leakage, wastage, and corruption in the delivery process. Third, even if the implementation process were faultless so that the first two problems were absent, administering these programmes uses up considerable manpower and resources. Fourth, some of these schemes involve subsidies that benefit the non-poor relatively more, since they consume more of the relevant good or the service. For example, power subsidies favour those who have access to electricity and among them, those who consume more power.

One has to think whether it’s a better option to put money directly into bank account of individuals, especially when doing away with MGNREGA and Public Distribution System and looking at the resources that we are going to generate from taxes and penalties. Definitely, it is one of the options before the government to think about, and the better option is to put money directly into the accounts of the poor, what it will do is to spur rural demand. No wonder then that policymakers and academics have been debating how to reform the existing policy architecture to enhance the effectiveness of resources devoted to poverty-alleviation.

For example, Economic Survey, which was tabled in Parliament on March 31, the idea of direct cash transfers, has been floated, under the acronym JAM (Jan Dhan Yojana, Aadhaar cards, mobile money platforms). This involves rolling all subsidies supposedly aimed at the poor into a single lump-sum cash transfer to target households.

Some recent proposals have gone further than this and advocate universal basic income (UBI) which is an unconditional and uniform cash transfer from the government to every adult, rich or poor. Even the JAM proposal continues to talk about transfers only to the poor. However, this leaves open the question of how to solve the targeting problem. Use the BPL card? The inclusion and exclusion errors are large – a recent study in Karnataka shows that more than two-thirds of ineligible individuals held a BPL card, while around one-sixth of eligible individuals did not have it.

The main attraction of the UBI is that it bypasses the selection problem altogether by making the transfer universal. What is the catch? 

First, any universal programme is expensive. For example, if we were to give every adult exactly the amount of income that defines the poverty line, which would ensure that everyone would be brought above the poverty line, calculations suggest the bill would amount to 11per cent of the GDP. This is just a hypothetical example. One can, of course, offer a lower amount per person that would be more affordable. 

However, in this context, a sense of perspective is needed in discussing expenditures on programmes aimed at the poor, who by official estimates constitute 30 per cent of the population. Yet non-universal programmes targeted to the non-poor are being doled out without much controversy on a regular basis. The total bill for implementing the recommendation of the Seventh Pay Commission, benefitting 47 lakh employees and 52 lakh pensioners (only 0.8 per cent of the population) is just one per cent of the GDP. Bad loans in public sector banks (90 per cent of which is attributed to large borrowers) constitute 5 per cent of GDP by conservative estimates.

Second, for such a programme not to add to the fiscal burden and create inflationary pressure, it has to be funded either by spending cuts or by increased taxes. 

The scope for spending cuts certainly exists. Explicit subsidies cost the government 4.2 per cent of GDP. Revenues foregone by the government on various exemptions and concessions given to tax payers constitute another 6.7 per cent of the GDP. That adds up to almost 11 per cent. A different exercise calculates the percentage of all central and state subsidies taken together that go to the non-poor, to be 9 per cent of the GDP. There is no question that potential resources exist that could fund a UBI scheme, but the real issue is whether there will be Political Support for the subsidy cuts, about which one cannot be very optimistic. 

None of these are insurmountable problems. Cutting wasteful expenditure and raising the tax base are both essential steps in fiscal reforms to raise resources for development, whatever may be one’s priorities, whether it is investing in infrastructure or fostering human capital or alleviating extreme poverty. It just underlines the importance of serious fiscal reforms, without which all these discussions are like deciding on what kind of cuisine to have without any money in the pocket. How about raising taxes? Given that only 1 per cent of the population pays income tax, while 2.3 per cent file tax returns, the fiscal instruments to claw back the transfer from the rich are limited. Once again, even adjusting for India’s low per capita income, the startlingly low fraction of income-tax payers reflects the fact that the agricultural and informal sectors’ incomes do not fall under its net. 

Similarly, it is true that the experience with implementing cash transfers in several states has been sobering, causing disruptions and hardships to the poor. While this is a valid concern, any change leads to some disruptions in the short-run, and these logistical problems are not impossible to overcome. One might also worry that the poor may not make the best use of the money in a cash transfer scheme but existing evidence does not provide support to this view. 

Niti Aayog Vice Chairman Arvind Panagariya has argued that India does not have the fiscal resources to implement UBI for all citizens. A UBI will be a better anti-poverty programme with minimum leakages compared to the vast range of subsidies currently given by the government. Phasing out subsidies on food, petroleum products, fertilizers and the funds spent on rural employment guarantee would free up resources which can be used to introduce the income transfer scheme.

The scheme should be for all adults and not merely for BPL population, to eliminate the risks of identifying the poor and accurate targeting. A UBI should be given individually to all adult men and women.

A Universal Basic Income (UBI) scheme should be introduced for all Indian adults for it to be effective and not only for people who are below the poverty line (BPL). The idea to start it only for the BPL population doesn’t work very well, because there are identification issues. BPL system takes a long time to measure number of poor people, and there could be changes in composition of the BPL population, as some people may move up and below the poverty line…It just doesn’t work.

Chief Economic Adviser to Indian Government Mr Arvind Subramanian argued in last July that a basic income scheme can be tried in the most disadvantaged regions of the country, rather than making it universal to start with.But a UBI for the entire population would cost India Rs 15.6 lakh crore annually. “The Tendulkar urban poverty line at 2011-12 prices is Rs 1,000 per person per month. Due to inflation between 2011-12 and now, at today’s prices, this sum would be significantly larger. But transferring even Rs 1,000 per month to all Indians would cost Rs 15.6 lakh crore (Rs 1,000 x 12 months x 130 crore people) a year. We simply do not have this magnitude of fiscal resources.

Speaking at World Economic Forum in Davos, Niti Aayog CEO Amitabh Kant said the government can try UBI in the form of interest free loan to poor people for a period of 3 to 4 years, which is repaid and recycled. UBI will be important in the context of disruption being caused in the job market through automation, and the government needs to do an in-depth analysis before launching such a scheme.

However, the presence of a large database of Aadhaar ard holders along with the Socio Economic and Caste Census data means India can effectively direct cash transfer to BPL population. The government would be able to manage the fiscal pressure in case it introduces UBI per family.

In discussing the merits and demerits of the UBI or any other development policy, it is important to avoid some standard pitfalls. 

First, all policies have some pros and cons, and so just picking a problem with or highlighting a nice feature of a particular policy is not good enough. That traps us in an elusive search for “win-win” policies. The focus should be on relative costs and benefits of different policies. 

Second, one size does not fit all. We should be open to the possibility that different policies could work well in different contexts. Cash transfers only make sense if you have ready access to markets, which is not true if you live in remote rural areas in which we have to rely on in-kind transfers. In a study of the bicycle scheme for school children in Bihar, we found that those living in remote areas do in fact prefer in-kind to cash transfers, with the opposite holding for those who live in urban areas.

Third, there is no magic pill that will cure all problems. Different policies are needed to address different problems. So yes, a UBI or a cash transfer as envisaged by JAM or the MGNREGA will provide some relief to the poor, but will not provide a long-term solution to the problem of poverty. For that one needs investment in health, education, and skill-formation to enable the poor to take advantage of growth opportunities, and investing in infrastructure and regulatory conditions to facilitate private investment for employment generation. To give an analogy, giving certain nutritional supplements may help a person who is ill to gain some strength, but it will not cure any disease, nor will it make the person an athlete.

Whether the poorest of the poor Indians get some form of monthly income from the government may be more about Political Will and less about fiscal considerations. According to Chief Economic Advisor Arvind Subramanian such a scheme is desirable to eliminate poverty but time is not ripe for its implementation – it is apparent that the government lacks Political Will at present to implement such a scheme. The Universal Basic Income (UBI) may remain a pipe dream for now. Will it inch towards implementation in the next Budget, when electoral considerations may make it more expeditious for the government?   

UBI scheme in place is possible if there is Political Will and for a start, it could be a targeted scheme, which means a guaranteed monthly income is not credited to every Indian’s bank account. “The government can start UBI for the extremely poor or choose some other targeted demographic group, where targeting is not difficult. By devising a ”universal” scheme, it would foreclose the idea because of volumes we are speaking of. No country around the world has implemented it universally.

According to Economic Survey, which was tabled in Parliament on March 31 and is a report card of the economic performance of FY17, UBI that reduces poverty to 0.5 per cent would cost between 4 to 5 per cent of GDP. But this is based on a significant assumption: that those in the top 25 per cent income bracket do not participate. Apparently, Survey is proposing a targeted income scheme and not a universal dole. The Survey goes on to note that the existing middle class subsidies and food, petroleum and fertilizer subsidies cost about 3 per cent of GDP. Thus, even a targeted monthly income in the hands of India’s disadvantaged will have a significant fiscal cost.

The critical aspect of such a scheme remains its individuality: It should be launched when all other state expenditures as subsidies are withdrawn – which is precisely why it needs more Political Will than fiscal prudence. The Surevy itself points out that UBI should be an alternative, not an add-on, to the various social welfare schemes currently in force. The Survey juxtaposes the benefits and costs of the UBI scheme in the context of the philosophy Mahatma Gandhi. “The Mahatma, as astute political observer, would have anxieties about UBI as being just another add-on Government programme, but on balance, he may have given the go-ahead to the UBI.”

The Survey listed following challenges in UBI implementation:

  • It would become an add-on to, rather than a replacement of, current anti-poverty and social programmes, making it fiscally unaffordable. But this is precisely a targeted programme with adequate implementation machinery would prevent!
  • Based on a survey on misallocation of resources for the six largest central sector and centrally sponsored sub-schemes (except PDS and fertilizer subsidy) across districts, the Survey says the districts where needs are the greatest are precisely the ones where state capacity is the weakest. This suggests that a more efficient way to help the poor would be to provide them resources directly, through a UBI. But the Survey does not actually suggest a roadmap for preparing the country for an eventual UBI scheme.
  • Centre-state negotiations for cost sharing of this programme. Again, this requires political acumen, deft handling and some hand holding of states – especially since many are already riled by the impending GST rollout and its fiscal implications.

Various international experts have suggested that a UBI of Rs 1,000 per individual per month for the “extremely poor” should be a doable idea by the government. “And no, it won’t become chaotic because government is already implementing portability of fair price shops”.

Now the question arises: Why India is even considering a universal basic income, when world over even developed countries are still examining the idea and its pitfalls? The driving force for providing a minimum level of sustenance to each citizen seems to emanate from the growing realization that the nature and availability of jobs has altered significantly around the world. There are fewer jobs due to increasing automation and then, there are more of these jobs which require higher skills, higher pay. For India, the situation has been particularly grim over the last two years as job creation has been at abysmally low levels even when the economy was galloping.

BJD MP Jay Panda – who advocated UBI much before demonetization – says the new economy of the 21st century – not just in India but everywhere in the world – is having a lot of automation and robotics, which means job creation is much less than before. For example today, if we have 7 per cent growth rate in the Indian GDP, it creates less jobs than 7 per cent growth rate would have created in 1990s. He refers to the World Bank estimate of 68 per cent of existing jobs in India being under threat in the coming 10 or 20 years due to technology. “Because of automation and robotics, even factories which used to employ hundreds of people today can manage with only five or seven people because they use robots for manufacturing.”In essence, the inability to create the required number of jobs at a pace which matches India’s GDP growth could be the trigger for a UBI scheme.

Not everyone is gung ho (unthinkingly enthusiastic and eager, especially about taking part in fighting or warfare) about this prospect though. According to Jayati Ghosh, Professor of Economics at JNU if the government was serious about helping citizens, “it would begin with implementing a universal basic pension first, at half the minimum wage”. This would mean a monthly pension of Rs 3000-4000 against a barebones Rs 200 that is now being paid every month– and even this amount is not universal but targeted pension. Our sense is that a lot of opposition to schemes like the UBI reflects the worry that they will displace other anti-poverty policies. It must be realized that a universal system would generate community and multiplier effects which selective, targeted schemes would not.

Basic income system is transformative. In low-income communities, money is scarce. If a commodity is scarce, its price rises, meaning that moneylenders or landlords can charge huge annual interest rates, so that a windfall gain from a harvest or spell of wage labour typically goes in paying back loans or credit. That is a disincentive to try to increase income, meaning that disposable income is less than measured income. If a basic income system were introduced, the price of money would decline, raising the real value of any income, and reducing the tendency to go to moneylenders. It gives recipients more control over when and how to spend on their needs. Contrary to middle-class prejudice, it leads to more spending on private goods and less on private bads, as has been found around the world.  It would also be wise for each State to set aside a small amount to pay to a designated body to overcome any obstacles to opening up accounts. To the extent that is not the case, why not try it out, at least on a scale that is affordable? What is exciting is that the evidence is strong that moving in this direction would make economic growth more inclusive and basic income a means of breaking cultural and other barriers to genuine human development. Basic income system would largely pay for itself and increase economic growth. And it would help to reach the sustainable development goals.

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