Context:

Recently, there have been calls for introduction of Minimum BasicIncome (MBI) in the country.

What is it?

The Minimum Basic Income is a social welfare system that guaranteesa basic income to households, provided they meet certain conditions.This is different from Universal Basic Income (UBI) scheme, which is aperiodic, unconditional cash transfer to all citizens on individual basis,without means-test or work requirement. To that extent, the MinimumBasic Income is a conditional UBI or a quasi UBI (targeted).

Advantages:

  • Social Justice & Equity: There is a need for such ways to ensure ajust society that needs to provide every individual a minimumincome to provide for basic necessities.
  • Freedom of choice: The poor in India are treated as subjects of Government’s welfare policies, rather thaneconomic decision makers. MBI treats them as agents and entrusts them with the responsibility of usingwelfare spending as they see best.
  • Poverty alleviation: According to Economic Survey (2016-17), income transfers can reduce poverty to 0.5% ata cost of about 4% to 5% of the GDP, if those in the top 25% income bracket are not included. Moreover,minimum income guarantee also covers urban poor.
  • MBI has potential to reduce rural distress for e.g. it can decrease long term rural indebtedness, as propensityto save increases.
  • Better social development: Pilot studies in Madhya Pradesh have shown that the income supplements canimprove nutrient intake, school enrolment and attendance of female students, toilet building etc.
  • Financial Inclusion: By augmenting rural income & promoting usage of bank accounts, which further expandsbanking services.
  • Other advantages include administrative efficiency, gender equity (by taking individuals and not household asbeneficiaries), insurance against shocks and flexibility in labor market.

Challenges:

  • Definition of basic income: It is difficult to reach on a consensus-based definition of ‘Basic Income’, which willbe sufficient to meet basic needs. Tendulkar Committee poverty line of 33/- a day works out basic income of12,000/- a year. It will cost 11-12% of GDP, in comparison to the existing subsidy burden of 4-4.5% of GDP.
  • Fiscal challenges: Total fiscal cost will depend on 2 factors: (i) Coverage of the scheme (ii) Extent of substitutionwith existing subsides/schemes. Further there are various challenges like difficulty in exiting subsidies, hostilityin extracting more tax revenue from wealthy, medium term fiscal risk, and rising consumption may strokeinflationary pressure.
  • Cash vs Kind dilemma: While giving income support, it is assumed that the beneficiaries would be wise in theirdiscretion. However, it suffers from challenges like misuse of cash (on demerit or sin goods), increasingvulnerability of women and child as finances of families are controlled by men, direct monetary benefits notbeing inflation proof, etc.
  • Targeted vs Universal: Universalisation is the key to efficient delivery of services against targetingproposed by these cash transferschemes. Strict targeting may have itsown problems like issues related toidentification of beneficiaries. Thisneeds an easily identifiable objectivecriterion. Otherwise, it cannot beclaimed to be superior in terms of theleakages.
  • Basic income is no substitute for state capacity: In developed countries, thecash transfers supplement existingsocial security provisions and are atop-up over and above universalprovision of health & education. In the Indian context, most arguments in favour of MBI are premised on theinefficiencies of existing social security interventions and seek to replace them with direct cash transfers.
    • Cash transfers seek to create demand for services without supplying the services, which leaves the poor to depend on private service providers. The privatisation of basic services such as health and educationmay lead to the problem of accessibility (e.g. in remote areas) and large scale exclusion of the poor andmarginalised.
  • Reduce worker productivity and reduce incentive for skill development and increasing employability throughconstant effort.
  • Implementation challenges: The success of cash transfers depend upon the outreach of banking system &last mile connectivity.
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