NOVEMBER, 2024

UNIVERSAL
BASIC INCOME
GROUP-11
PGP/27/435-DIVYANSH CHAUDHARY
PGP/27/456-NEHA
 1. Introduction

2. Advantages of UBI

3. Disadvantages of UBI
C O N T E N T S

4. Recent UBI Trials

5. Indian Context

TABLE 6. How can a UBI overcome these Issues?

O F

7. Improved fInancIal InclusIon

T A B L E

OF CONTENTS 8. Where is the fiscal space to finance a

UBI?

9. Guiding Principles for Setting up a UBI

1 0 .P r e - r e q u i s i t e s
 A Universal Basic Income (UBI) is a regular fixed cash transfer
payment provided by the government – or another institution
in the public sphere – to every citizen or resident, regardless
of whether he or she is rich or poor and/or wishing to be
engaged in paid employment (Raventós, 2007).
The idea of a basic income is founded on the three following
characteristics (De Wispelaere & Stirton, 2004; Van Parijs,
I N T R O D U C T I O N

2004):
INTRODUCTION Universality: a basic income should be open to all
population (however, some basic income proponents
advise to start in a specific domain and then “universalise”
gradually over time);
Individuality: a basic income should be designed to
cater to individuals, not households, since it is considered
a truly individual right;
Un-conditionality: a basic income should be
unconditional (or it should employ conditions that do not
violate inclusiveness).

Free Money with No strings Attached

 Economically
Freedom and Justice Poverty Reduction
Efficient Welfare
UBI aims to enhance personal It could help to eradicate poverty, Unlike traditional welfare programs

ADVANTAGES freedom by providing financial

support without conditions. In India,
this aligns with Gandhian principles of
swaraj, or self-reliance, by reducing
regardless of the cause of poverty. UBI
provides financial support to
individuals in severe poverty to meet
basic needs. For families, this financial
that discourage work by cutting
benefits at income thresholds, UBI
with a flat tax rate doesn't penalize
higher earnings. While existing welfare
economic dependency and enabling aid allows parents to invest in their systems can create dependency and
U B I

people to make life choices based on children’s education and health, high marginal tax rates that reduce
personal values rather than financial creating pathways out of work incentives, UBI preserves the
Freedom and Justice need. intergenerational poverty. opportunity cost of work by allowing
James Tobin (1966) recipients to keep their full earnings
O F

(Van Parijs, 2001;Birnbaum, 2012)

Poverty Reduction (Fitzpatrick, 1999)
By promoting security, UBI encourages UBI enables the poor to take on
An Economically Efficient
A D V A N T A G E S

a mindset shift among individuals, entrepreneurial risks, fostering By consolidating multiple welfare
creating a culture of abundance business creation and innovation. programs into one, UBI reduces
Welfare Solution rather than scarcity. This Additionally, the added income can administrative costs and complexity. It
psychological shift can strengthen help overcome barriers to credit, simplifies evaluating redistribution
Promoting Gender Equality social bonds and increase trust, unlocking access to education, impacts, minimizing errors in eligibility,
initiative, and solidarity, especially in training, and job mobility, which and reaching more beneficiaries
Reducing Income Inequality communities facing economic
hardship.
further supports human and economic
development
effectively.
(Tanner, 2015)
(Nooteboom, 1986)
Post-Productivist Arguments Fromm (1966)

UBI offers all citizens a right to a

Political Economy and basic income, thereby promoting
As the money is provided universally The theoretical advantage of the UBI
as a “right of citizenship” rather than compared to the minimum wage
social justice. In India, where
Transparency targeting errors in welfare distribution
as a targeted benefit, the stigma and model is that it should not affect the
shame typically attached to receiving demand for labour and, as workers
are common, UBI’s universal nature
benefits from the state should not be are not wholly dependent on their
would ensure all citizens receive fair
present .Finally, the transfer is wages for survival, it may even help to
support, bypassing the need to
expected to help strengthen social ensure a greater degree of labour
separate the “deserving” from the
solidarity and cohesion, and avoid market flexibility and help to re-
“non-deserving.”
alienation and distrust. engineer the welfare system.
Widerquist et al. (2013)
(Standing, 2008) (Meade, 1990; Van Parijs, 1990)
 Reducing Income Inequality
A Universal Basic Income (UBI) can
help reduce income inequality by
providing everyone with a set
financial amount, funded through a
proportional income tax (Ravallion,
2016). This approach supports lower-
A D V A N T A G E S

income groups, narrowing the income

distribution gap. UBI also strengthens
workers' bargaining power, enabling
them to refuse poor working
conditions and pushing employers to
improve job quality (Perkiö, 2014).
Additionally, UBI acts as a safety net
against job losses due to
technological changes, easing public
resistance to innovation (Sheahen,
2012).
 Promoting Post- Political
Gender Productivist Economy and
ADVANTAGES Equality Arguments Transparency
UBI empowers Societal and UBI, due to its universal
U B I

individuals, particularly technological nature, is less

vulnerable to
Freedom and Justice women engaged in changes make
unpaid work, by shifting bureaucratic abuse,
O F

traditional paid work

Poverty Reduction economic power minimizing interest
less central,
An Economically Efficient group influence.
A D V A N T A G E S

towards them, thus advocating for basic

supporting their income to recognize Buchanan (1997)
Welfare Solution financial autonomy and indicates it mitigates
unpaid activities. This
Promoting Gender Equality bargaining power system allows rent-seeking issues
within households. To individuals to when combined with a
Reducing Income Inequality
maximize this impact, balance various work flat tax. It enhances
Post-Productivist Arguments UBI should be paired forms—remunerated, public expenditure
with policies that transparency,
Political Economy and domestic, and
ensure women's access voluntary. They preventing fraud and
Transparency to banking, further gaining broader
disconnect
enhancing their employment and political support
financial security. compared to other
welfare.
policies.
 Financial Pressure Negative Work Labor Market
Incentives Impact

DISADVANTAGES The fundamental challenge of UBI

lies in its massive financial
requirements, as noted by
Phelps (2001) and Withorn (1993)
argue that UBI could undermine work
motivation and social cohesion. It risks
Vanderborght (2004) warns that UBI
could disrupt labor markets by
Fitzpatrick (1999). The universal
reducing workplace interactions and enabling employers to lower wages,
coverage creates a critical dilemma:
potentially widening gender labor viewing basic income as a wage
U B I

setting the amount too low makes it

divides. The "reciprocity objection" supplement. It might increase
ineffective for poverty reduction,
(Fitzpatrick, 1999; Widerquist et al., precarious employment and weaken
while setting it too high becomes
2013) highlights concerns about trade unions' bargaining power
O F

financially unsustainable for

governments. This financial balancing people receiving benefits without through increased self-employment,
Financial Pressure act remains a primary reason for societal contribution, challenging potentially destabilizing traditional
fundamental social principles. employment structures
D I S A D V A N T A G E S

opposition, as seen in cases like the

Administrative Challenges Swiss referendum.

Negative Work Incentives

Benefits Leakage Administrative
Benefits Leakage Migration Concerns
Challenges
Labor Market Impact
Despite appearing simpler than
Migration Concerns targeted welfare, Ravallion (2016) UBI's universal nature means benefits
emphasizes that UBI still requires flow to those who don't need support, While migration concerns exist, van
sophisticated administrative systems. creating inefficient resource Parijs (2006) suggests a residency-
It demands a robust taxation allocation. This could force cuts in based system with minimum duration
infrastructure and comprehensive crucial targeted benefits like disability requirements as a solution. However,
data on citizens' income and wealth. allowances or require unsustainable this approach risks creating a dual
These requirements create tax increases. Rather than reducing labor market where migrants
implementation hurdles similar to inequality, this misdirection of predominantly take low-wage jobs.
traditional welfare systems, resources might actually worsen The challenge lies in maintaining
particularly challenging for countries economic disparities. universality while preventing
with limited administrative unsustainable migration pressures.
capabilities.
 Recent UBI Trials
United States (Alaska)
Program: Annual dividend from the Alaska Permanent Fund.
Details: Each citizen receives $1,000–$2,000 from oil revenues.
Impact: No effect on employment overall, reduced extreme poverty, and increased fertility
rates.

Finland
Program: Twoyear trial for 2,000 unemployed citizens.
Details: €560 monthly with no work requirements.
Outcome: No increase in employment but higher happiness, less stress, and increased trust in
institutions

Spain (Barcelona BMINCOME)

Program: Guaranteed minimum income for 1,000 low income households
Details: Up to €1,675 monthly, with variations in conditions
Outcome: Improved life satisfaction and mental health; no impact on employment.

Iran
Program: Nationwide unconditional cash transfers to offset subsidy removal.
Details: Monthly payments covering 29% of median household income.
Impact: No significant reduction in labor supply; program continues at a reduced scale

Kenya
Program: Give Directly’s 12year UBI experiment with monthly payments in rural areas.
Details: 75 cents per adult per day for 12 years.
Impact: Early results show economic stimulation and benefits for recipients and nearby
communities.

India (Madhya Pradesh)

Program: Pilot project in rural villages funded by UNICEF.
Details: 200–300 rupees per adult and 100–150 rupees per child monthly.
Outcome: Improved health, school attendance, and economic outcomes in recipient villages.
 INDIAN CONTEXT
Share of Poor across districts Misallocation - Shortfall in Allocation to Poor
S C E N A R I O
I N D I A N

The two graphs above provide new evidence on the extent of misallocation across districts for the six top welfare
programs - the PMAY, SSA, MDM, PMGSY, MGNREGS and SBM
 HOW CAN A UBI OVERCOME
THESE ISSUES?
I N F O R M A T I O N

INSURANCE AGAINST RISK

MISALLOCATION TO OUT OF SYSTEM LEAKAGE
AND PSYCHOLOGICAL
DISTRICTS WITH LESS POOR
BENEFITS

The design of Universal Basic Income (UBI) A Universal Basic Income (UBI) minimizes out- Poor households frequently face personal and
S H A R E

aims to address issues of resource of-system leakage by directly transferring widespread economic shocks (e.g., illness,
misallocation by providing a straightforward, funds to beneficiaries' bank accounts, crop loss, natural disasters), with poverty
universal cash transfer directly to reducing the potential for diversion and contributing up to 80% of their vulnerability.
beneficiaries. Unlike other welfare schemes limiting authorities' discretionary powers. With Most rely on personal savings for support, as
that require complex eligibility checks, UBI broader coverage, UBI makes the state government aid is accessed by only 10%. A
M A R K E T

eliminates the need for bureaucratic hurdles accountable to a larger population, and its Universal Basic Income (UBI) could serve as
and enables recipients to access funds from straightforward structure allows for easier financial security, lessening reliance on
their accounts freely. This simplicity reduces monitoring compared to other welfare savings and providing a psychological buffer.
administrative strain, as there is no need to schemes Research shows that poverty drains cognitive
distinguish between poor and non-poor, resources, leading to poor decision-making,
making UBI’s success less dependent on local while cash support (like UBI) improves well-
administrative efficiency and more focused on being, reducing stress and enhancing life
direct, equitable distribution. satisfaction, potentially empowering
individuals to pursue skill development and
better employment opportunities.
 STRENGTHS WEAKNESSES
IMPROVED FINANCIAL INCLUSION
Strong Brand: Our brand is well-established Limited Market Share: Our market share is
and recognized for quality and reliability, giving relatively small compared to key competitors,

MORE PROFITABLE FOR

us a competitive advantage. limiting our overall reach.
ACCESS TO FORMAL
BANKS Innovative Products: We have a track record of
innovation, continuously developing new C R few
E keyDsuppliers,
I T making us vulnerable to
Dependence on Suppliers: We rely heavily on a

products that meet evolving customer needs. supply chain disruptions.

I M P R O V E D F I N A N C I A L

Experienced Team: Our team comprises P r i c i n g s tLimited

r a t e gMarketing
y i s a Budget:
c r u c iOur
a l marketing
element of
industry experts with deep knowledge and budget is constrained, restricting our ability to
Since the launch of the Pradhan Mantri Jan Dhan a n y Basic Income (UBI) could ease credit
A Universal
experience, contributing to our product b u s i nexpand
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Yojana (PMJDY), financial inclusion in India has constraints byg eboosting
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I N C L U S I O N

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behind. Active use is lower overall, especially in rural suggests that if everyone’s consumption were raised to this
and established rivals.
areas, among women, and those below the poverty threshold, access to formal credit might significantly
Economic Uncertainty: Economic downturns can
line, and is hindered by challenges such as long improve.
impact consumer spending, affecting our sales.
distances to bank branches and high numbers of
Regulatory Changes: New regulations or
people per branch. compliance requirements may affect our
operations and increase costs.
Where is the fiscal space to finance a UBI?

Implementing a Universal Basic Income (UBI) requires

prioritizing government expenditures to create fiscal
space without undermining essential welfare
programs. While UBI could effectively reduce poverty,
it should not consume funds needed for critical state
functions. The largest subsidies, amounting to
approximately 2.07% of GDP, go toward fertilizer,
petroleum, and food. Additional programs, including
940 sub-schemes, account for another 2.3% of GDP.
Notably, subsidies benefiting the middle class alone
cost around 1% of GDP, equivalent to a UBI of ₹3,240
per year per female. However, removing middle-class
subsidies faces political resistance, underscoring the
need for a careful evaluation of UBI’s economic
implications.
 Guiding Principles for Setting up a UBI
De jure universality, de facto quasi-
Gradualism
universality

Choice to persuade and to establish the

principle of replacement, not additionality
If universality has powerful appeal, it will also elicit powerful resistance. Offering UBI as an alternative to existing benefits empowers beneficiaries with
The popular reaction to demonetization reveals a deep sense that the choice, incentivizes administrators to improve service quality, and helps control
well-off gain from and game the current system to their advantage. In costs.
that light and keeping in mind fiscal costs, the notion of transferring even
some money to the well-off may be difficult.

A women-focused UBI could halve costs, empower women, and benefit households,
though adding child-based support may raise issues with verification, family size
incentives, and phasing out boys as they age.

To implement UBI while excluding the wealthy, several strategies could be

used: exclude individuals based on assets or high bank balances,
Phasing in UBI for vulnerable groups, like widows, pregnant mothers, and the
encourage voluntary opt-outs (like the LPG model), publicly list
elderly, could help fulfill the state's support obligations and target easily
beneficiaries to deter wealthy participation, and use self-targeting,
identifiable individuals. While pensions have low leakages, and maternity
where recipients verify eligibility. However, self-targeting could
benefits aid medical costs, access barriers such as exclusion errors and limited
complicate the JAM system’s simple, direct transfer approach.
bank access remain challenges for these groups.
 Jan Dhan-Aadhaar-
Mobile
While Aadhaar coverage speed has been
exemplary, with over a billion Aadhaar cards
Effective financial inclusion is essential being distributed, some states report
for UBI success, but nearly one-third of authentication failures: estimates include 49
Indian adults lack bank accounts, percent failure rates for Jharkhand, 6
P R E R E Q U I S I T E S

especially among the poorest groups, percent for Gujarat, 5 percent for Krishna
such as women, SCs, STs, the elderly, and District in Andhra Pradesh and 37 percent
infirm, who rely most on state subsidies. Failure to identify genuine beneficiaries
results in exclusion errors.

A major concern for UBI implementation is

India has 50 crore Jan Dhan accounts, with leakage; while evidence shows universal in-
high density in poorer states, notably kind transfers reduce leakages in India, it’s
Chhattisgarh. Around 57% are Aadhaar- unclear if universal cash transfers would do
linked, though regions like the North-East the same. The high volume of cash in a UBI
and Jammu & Kashmir lag behind. Despite system might increase corruption risks. Thus,
rapid progress, further development in JAM UBI’s success heavily depends on a secure,
infrastructure is needed for effective UBI transparent financial system accessible to
implementation. all, underscoring the importance of the JAM
(Jan Dhan-Aadhaar-Mobile) architecture.
 Centre-State
Negotiations

The UBI amount will be a crucial factor in ensuring

P R E R E Q U I S I T E S

the success of such a programme. A key federal

question will be the centre-state share in funding of
the UBI. This would, like the GST, involve complex
negotiations between federal stakeholders. Initially,
a minimum UBI can be funded wholly by the centre.
The centre can then adopt a matching grant system
wherein for every rupee spent in providing a UBI by
the state, the centre matches it.
 REFERENCES
https://epaper.thehindu.com/ccidist-
ws/th/th_international/issues/103676/OPS/GTSDEK7GA.1+GQVDFH39
J.1.html
https://www.indiabudget.gov.in/budget2017-2018/es2016-
R E F E R E N C E S

17/echap09.pdf
https://www.undp.org/sites/g/files/zskgke326/files/migration/cn/UND
P-CH-Universal-Basic-Income-A-Working-Paper.pdf
https://youtu.be/1U1D7nmcnZ0?si=oIvgLMD94pIADaHW
 THANK
SEPTEMBER, 2023

YOU
Borcelle Studio