UBI is based on the idea that everybody should be given a basic minimum income as an entitlement and not as compensation for work, which shall be directly cash transferred to the eligible beneficiaries. The individuals would, therefore, be free to use the cash as per their discretion and spend according to their individual preferences.
Universal Basic Income is a radical and compelling paradigm shift in thinking about both social justice and a productive economy. It could be to the twenty first century what civil and political rights were to the twentieth. It is premised on the idea that a just society needs to guarantee to each individual a minimum income which they can count on, and which provides the necessary material foundation for a life with access to basic goods and a life of dignity.
UBI has three components:
- Unconditionality and
- Agency (by providing support in the form of cash transfers to respect, not dictate, recipients’ choices).
Arguments in Favour of UBI
- Poverty and vulnerability reduction
Conditional on the presence of a well-functioning financial system, a Universal Basic Income may simply be the fastest way of reducing poverty.
A UBI treats beneficiaries as agents and entrusts citizens with the responsibility of using welfare spending as they see best; this may not be the case with in-kind transfers.
- Better targeting of poor
As all individuals are targeted, exclusion error (poor being left out) is zero though inclusion error (rich gaining access to the scheme) is 60 percent.
- Insurance against shocks
This income floor will provide a safety net against health, income and other shocks.
- Improvement in financial inclusion
Payment – transfers will encourage greater usage of bank accounts, leading to higher profits for banking correspondents (BC) and an endogenous improvement in financial inclusion.
Credit – increased income will release the constraints on access to credit for those with low income levels.
- Psychological benefits
A guaranteed income will reduce the pressures of finding a basic living on a daily basis.
- Administrative efficiency
A UBI in place of a plethora of separate government schemes will reduce the administrative burden on the state.
Arguments against UBI
- Conspicuous spending
Households, especially male members, may spend this additional income on wasteful activities.
- Moral hazard (reduction in labour supply)
A minimum guaranteed income might make people lazy and opt out of the labour market.
- Gender disparity induced by cash
Gender norms may regulate the sharing of UBI within a household – men are likely to exercise control over spending of the UBI. This may not always be the case with other in-kind transfers.
Given the current status of financial access among the poor, a UBI may put too much stress on the banking system.
- Fiscal cost given political economy of exit
Once introduced, it may become difficult for the government to wind up a UBI in case of failure.
- Political economy of universality – ideas for self-exclusion
Opposition may arise from the provision of the transfer to rich individuals as it might seem to trump the idea of equity and state welfare for the poor.
- Exposure to market risks (cash vs. food)
Unlike food subsidies that are not subject to fluctuating market prices, a cash transfer’s purchasing power may severely be curtailed by market fluctuations.