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Universal Basic Income (UBI) in India: A Comprehensive Analysis

Universal Basic Income (UBI) in India: A Comprehensive Analysis

Introduction
In the face of rising income inequality and unemployment, discussions around Universal Basic Income (UBI) have gained traction in India. The International Labour Organization (ILO) has highlighted concerns over jobless growth, a phenomenon worsened by automation and Artificial Intelligence (AI). As a potential solution, UBI is being explored to provide a financial safety net, ensuring basic economic security for all citizens.

Background and Evolution of UBI in India

The concept of Universal Basic Income (UBI) gained prominence in India after the 2016-17 Economic Survey, which proposed it as an alternative to inefficient welfare schemes. The evolution of the JAM (Jan-Dhan, Aadhaar, Mobile) infrastructure has further strengthened the feasibility of Direct Benefit Transfers (DBTs), making UBI a more viable policy option.

UBI aims to provide a fixed income to all individuals without any preconditions, ensuring a minimum level of financial security. While it does not directly address structural employment issues, it serves as a crucial social safety net.

Key Benefits of Universal Basic Income (UBI)

1. Poverty Alleviation

UBI can help eradicate extreme poverty by providing direct cash transfers, ensuring a minimum income floor for basic needs like food, healthcare, and education.

2. Reduction in Bureaucratic Inefficiencies & Leakages

Unlike traditional welfare programs, which suffer from corruption and middlemen, UBI ensures direct financial aid, reducing administrative costs and exclusion errors.

3. Boost in Consumption and Economic Growth

By increasing purchasing power, UBI can stimulate aggregate demand, especially in rural areas. Increased spending can fuel economic growth and job creation.

4. Support for Vulnerable Groups

UBI is particularly beneficial for the elderly, disabled, unemployed, and marginalized sections who are often excluded from employment-based welfare schemes.

5. Investment in Human Capital

Financial security encourages spending on education, skill development, and healthcare, leading to long-term economic benefits.

6. Mental Well-Being & Crime Reduction

Financial stability reduces stress and anxiety, leading to improved mental health. Studies suggest that economic security may lower crime rates, promoting social stability.

Challenges in Implementing UBI in India

1. High Fiscal Burden

Providing UBI at a meaningful level is expensive. Estimates suggest it could cost anywhere between 3.5% to 11% of GDP, raising concerns over its financial sustainability.

2. Replacement of Existing Welfare Programs

Replacing schemes like PDS (Public Distribution System) or MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) with UBI could disrupt essential support systems for the most vulnerable populations.

3. Inflationary Pressures

A sudden increase in cash supply may lead to inflation, especially in rural markets, where supply constraints exist.

4. Work Disincentive

Critics argue that assured income might reduce motivation to work, potentially impacting labor force participation.

5. Technological & Logistical Barriers

Issues such as Aadhaar authentication failures, banking infrastructure limitations, and digital illiteracy may lead to exclusion errors.

6. No Structural Economic Impact

While UBI provides short-term relief, it does not resolve long-term challenges like education quality, healthcare access, and industrial development.

Existing Direct Cash Transfer Schemes in India

State-Level Initiatives

  • Rythu Bandhu (Telangana) – Provides unconditional financial aid to farmers.

  • KALIA (Odisha) – Offers direct cash support to small and marginal farmers.

Central-Level Initiative

  • PM-KISAN – Provides ₹6,000 annually to over 10 crore agricultural households.

Despite their success, these programs face inclusion and exclusion errors, limiting their effectiveness.

Financial Viability of UBI in India

A full-scale UBI could require huge financial resources, necessitating reallocation of existing welfare funds, higher taxation, or an increase in fiscal deficit.

  • A UBI pegged at 1% of GDP would provide around ₹144 per month per person, which is insufficient for meaningful impact.

  • A targeted approach focusing on women, elderly, disabled, and landless laborers could balance affordability and effectiveness.

Way Forward: A Pragmatic Approach to UBI

1. Targeted Implementation

A phased approach targeting vulnerable populations can ensure optimal resource utilization.

2. Integration with Existing Welfare Schemes

Rather than replacing welfare programs, UBI should complement schemes like MGNREGS and PDS to create a comprehensive social safety net.

3. Strengthening JAM Infrastructure

Enhancing Aadhaar-linked bank accounts, mobile connectivity, and digital literacy will ensure seamless cash transfers.

4. Combining UBI with Employment Policies

Since UBI alone cannot solve unemployment, it must be paired with job creation initiatives, skill development programs, and industrial expansion.

Conclusion

Universal Basic Income (UBI) is a powerful tool to reduce poverty and inequality, but its large-scale implementation remains financially challenging. A targeted and phased UBI, integrated with existing welfare schemes, can strike a balance between fiscal responsibility and social security. The success of UBI in India will depend on effective governance, financial prudence, and technological advancements.

Multiple Choice Questions (MCQs) for UPSC CSE

  1. Which government document first proposed Universal Basic Income (UBI) in India?
    a) NITI Aayog Report 2019
    b) Economic Survey 2016-17
    c) Union Budget 2020-21
    d) Finance Commission Report
    Answer: b) Economic Survey 2016-17

  2. What is the main objective of UBI?
    a) Job creation
    b) Economic development
    c) Financial security for all citizens
    d) Increasing government revenue
    Answer: c) Financial security for all citizens

UPSC Mains Question

"Universal Basic Income (UBI) has been proposed as a solution to rising inequality and jobless growth in India. Discuss its relevance in the context of automation and Artificial Intelligence. Suggest a feasible approach for UBI implementation." (250 words).

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