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31 January 2017 Question Bank


31st JANUARY 2017


(1 Question)


Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.

Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers.


1.      The idea of a universal basic income (UBI) has been gaining ground globally. Should it be introduced in India? Discuss its pros and cons.


Universal Basic Income (UBI) Globally:

  • The idea of a universal basic income (UBI) has been gaining ground globally.
  • While Switzerland held a referendum on it in 2016 (it was voted down), Finland introduced it in early January 2017.
  • India’s flagship Economic Survey 2017 is likely to endorse the UBI, setting the stage for its introduction.
  • In the West, the UBI is being discussed as a solution to two problems:

1.      unemployment due to automation; and

2.      growing social unrest caused by extreme inequality and precarity.

  • It is expected to solve the unemployment problem by decoupling subsistence from jobs, freeing human beings to realise their true potential, preferably through entrepreneurship. It would address the second by supplying monetary resources to access the necessities of life. This, in a nutshell, is the popular understanding of the UBI. The reality, however, is not so rosy.

The UBI evangelists:

  • The most eloquent advocates of UBI today are free-market enthusiasts — the same lot branded as neo-liberals for their advocacy of deregulation, privatisation, and cuts in welfare spending.
  • Their guru, Milton Friedman, was an early advocate of basic income.
  • Outside the academic realm, the biggest champion of UBI is the global tech sector.
  • Silicon Valley billionaires such as Elon Musk, the founder of Tesla Motors, and Facebook co-founder Chris Hughes have publicly backed the idea.
  • Invariably, they all present the same conclusion: giving cash to the poor is better than traditional welfare 

A redistributive UBI:

  • It is indeed possible to have a redistributive UBI.
  • But it would need to fulfil two conditions:

1.      it must be funded by taxing the wealthy; and

2.      the existing entitlements to the poor must not be taken away.

  • Such a UBI would actually be a socialist measure that would increase the bargaining power of the working classes by giving them an income cushion.
  • But neither of these conditions is met by any of the UBI designs being promoted today, either globally or in India.
  • The much-touted Finnish experiment is restricted to the unemployed. It does not cover all working individuals. And it only replaces the already existing basic unemployment allowance and labour market subsidy — it is not an add-on benefit.

What constitutes a basic income?

  • The actual minimum wage in India is around ?4,800 per month.
  • While different numbers have been bandied about, there seems to be a broad consensus around the Tendulkar committee poverty line of Rs 33 a day. This works out to a basic income of Rs 1,000-Rs 1,250 a month or Rs 12,000-Rs 15,000 a year.
  • But even this modest figure is estimated to cost 11-12% of the GDP. In contrast, all the government’s subsidies put together account for only 4-4.5% of the GDP.

JAM trinity:

  • The Jan-Dhan Yojana set out to make every Indian accessible to global finance.
  • The Aadhaar card set out to make every Indian identifiable and enumerable as data — the currency of global tech.
  • The high mobile penetration has connected every Indian to the global digital network.
  • An element that was missing was consumer behaviour, which the recent demonetisation sought to address, by force-feeding ‘cashless’ to a cash-dependent population.
  • The UBI fits perfectly in this scheme of things, as it seeks to compress the whole gamut of welfare benefits into one, and mount it on a singular JAM (Jan-Dhan, Aadhaar, Mobile) platform.

Direct Cash Transfer:

  • Back in 2008, in an influential paper in the Economic and Political Weekly titled ‘The case for direct cash transfers to the poor’, Arvind Subramanian, the present Chief Economic Adviser of the government, along with economists Devesh Kapur and Partha Mukhopadhyay, argued that the ?1,80,000 crore spent annually on centrally sponsored schemes and assorted subsidies should instead be distributed as cash directly to 70 million households below the poverty line. Put simply, the UBI in India is nothing but the old wine of direct cash transfer in a fancy new bottle.
  • Its objective remains the same: to eliminate the public distribution system (PDS) and with it, the food, fuel, and fertiliser subsidies.
  • It would result in the elimination or a significant roll-back of programmes such as the PDS, midday meal schemes, and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

A case against direct cash transfers:

  • Economists such as Jean Dreze have convincingly argued against direct cash transfers.
  • There is immense pressure on India in secretive free trade negotiations.
  • The developed nations have for long wanted India to wind up its food security-related provisions — both state procurement of foodgrains, and their subsidised distribution via PDS.
  • A UBI would pave the way for the elimination of these measures, dealing a death blow to food security and deepening farm distress.
  • Another is that the Indian state is stuck with welfare commitments it cannot renege on without political and legal consequences.
  • The efficiency/inefficiency argument for scraping PDS and MGNREGS never acknowledges that these are rights-based social entitlements with specified outcomes — and that is not accidental.
  • Shifting the welfare paradigm to UBI would loosen the bonds of legal and social accountability.
  • Under the PDS, for instance, the state must provide a specified quantity of foodgrains to the poor no matter what.
  • With UBI, it has the option letting the payout slide behind inflation, as has already happened with the old age and widow pensions.
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