Friday, December 30, 2016

Universal Basic Income

Universal Basic Income is an idea whose time has come. Universal basic income will be a form of social security in which all Indian citizens below the poverty line regularly receive an unconditional sum of money from the government. The amount may be as little as Rs2000 - Rs3000 a year, but that's a lot of free money in the bottom rungs of the income pyramid. Poor families are always destabilized due to their lives irregular cash flows and looming expenses. This will act as small cushion for critical times.

Why the time is ripe politically ? Demonetization has also created a disaster effect on Indian economy and market. Hence, NDA government has changed the demonetization narrative from one of fighting black money to bring about pushing for a cashless economy. NDA had prominently highlighted the issue of black money and had promised to bring it back in Lok Sabha election campaign. Universal Basic Income into Jan Dhan Account will be seen as commitment to a political agenda and a smart way to fight poverty.

There are two major school of thoughts under Direct Cash Transfer (DCT) - CCT and UCT. A comprehensive review of the evidence around cash transfers, Berk Ozler of the World Bank suggests that an unconditional cash transfer (UCT) can provide a critical foundation, on which policymakers can layer carefully designed, targeted CCTs to encourage specific outcomes, such as education or health behaviors. Unconditional Cash Transfer (UCTs) consist of cash grants with means testing to ensure funds go to the intended recipients, but without extra requirements on recipient behavior. Universal Basic Income comes into category of Unconditional Cash Transfer. Those who are further interested in the subject, this video does an excellent job:

While the number of Jan Dhan bank accounts opened as per the latest estimates stands at 26.03 Crore, reaching the last-mile user remains a problem and large number of dormant accounts. Only 14.43 crores of them are aadhar seed hence a verification and duplication is tough to avoid. But universal basic income will help banks to reduce current number (23.85%) of zero balance accounts. A 2013 CGAP report actually points that electronic Payments and social cash transfers in India can improve the business case for banks and agents.

Concept of universal basic income is utilized in developed countries currently. The available routine, process-oriented jobs job of people may be automated in a few years’ time due to the digital revolution, artificial intelligence and robotics. Finland has begin paying basic income to unemployed citizens. A recent research paper suggest that even done for short–term unconditional cash transfers (UCT) will create longer-term impacts.

Cash transfers are an effective, low-cost social protection tool, but they don’t on their own move people out of poverty. The cash transfers should not be seen as a substitute for state actions. There is always investment required in improving infrastructure for health services, education, skill training, and other social programs. The policy question remains still to be answered as universal basic income may sound great but questions remain over whether India can afford it. How much money can be termed as a true “basic” income for household? Should it be truly be both unconditional and universal? Can the program be tailored for more gender sensitive in nature? The debate has just begun and can be read at LivemintGlobal dialogue. More time will be needed for individuals to understand how universal basic income will affect institutions, and their relevancy to their daily lives.

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