The Basics of the UBI

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Guy Standing’s primer is an excellent guide to the main talking points of the Universal Basic Income.

Apna Time Aayega from the movie Gully Boy has been the anthem for the season. When it comes to economics, the time to talk about a universal basic income in India seems to have come.

The Narendra Modi government has launched PM-Kisan, an income support scheme for small and marginal farmers who own land of up to two hectares (around 4.94 hectares). The government will pay Rs 6000 a year, in three equal installments, to these farmers. Rahul Gandhi, the president of the Congress party, has proposed a minimum income guarantee scheme, or MIG-19 as I like to call it, if the Congress party comes to power after the 2019 Lok Sabha elections.

In this scenario, it is important to understand the concept of universal basic income (UBI). And there is no better book to understand this than Guy Standing’s Basic Income.

Standing goes into various aspects of UBI in this book, starting with its definition. A universal basic income “can be defined as a modest amount of money paid unconditionally to individuals on a regular basis (for example, monthly).” Further, it is called a universal basic income because the intention is to pay money to everyone. In fact, the most important word in the definition is unconditional.

There are three things which make any form of UBI unconditional: a) no income conditions. b) no spending conditions. c) no behavioural conditions. While PM-Kisan does not have any income conditions for eligibility, it does have a land-ownership cut-off. The same is true for MIG-19, which will have some sort of an income cut-off, below which the government will make a payout. So, if the cut-off is let’s say Rs 72,000 per year (or Rs 6,000 per month) per household, any household making lower than that will be compensated by the government. Hence, for a household making Rs 50,000 per year, will receive Rs 22,000 from the government, to ensure that they make at least Rs 72,000 per year. Along similar lines, a household making Rs 30,000 per year will receive Rs 42,000 from the government. Hence, the poorer the household, the more money they will get from the government under MIG-19.

MIG-19 puts a condition of eligibility and, hence, doesn’t qualify as UBI as per Standing. As he writes: “A stable and predictable basic income, paid come rain come shine, is thus different from a minimum income guarantee, which tops up low incomes.”

After having established a basic definition of UBI, Standing goes on to argue in great detail that UBI is an idea whose time has come. One of the first points he makes in support of UBI is that it brings day-to-day freedom in the lives of people, giving them the liberty to do things that they want to do, from the freedom to have a child to the freedom to leave an abusive relationship to the freedom to start a small-scale business venture to the freedom to risk learning new skills etc.

While all this makes a lot of sense in the Western world, in India UBI just makes sense from the point of view of the fact that states like Bihar, Uttar Pradesh, Jharkhand, Uttar Pradesh, Madhya Pradesh and many states in the north-east are simply very poor. Typically, countries which have gone from being developing to becoming developed have done so on the basis of a well-run manufacturing sector producing goods for exports.  India is seeing premature non-industrialisation in many states, with the share of manufacturing as a part of the state’s GDP falling over the years. Hence, the formula that worked for the world at large isn’t going to work for India. In this scenario, poor citizens need the helping hand of the state. As Standing writes: “A basic income, with its certainty (or near so), lowers the cost of living for recipients.”

Standing dedicates a large part of the book in tackling arguments made against UBI.  One question that is always asked when it comes to UBI is, won’t free money make people lazy and work less? The problem with this otherwise convincing argument is that empirical experiment goes against it.

As Standing writes regarding a basic income experiment carried out in Madhya Pradesh: “In the larger pilots in Madhya Pradesh, work and labour among adults increased, particularly in case of women; this was largely because many recipients started secondary economic activities.”

Nevertheless, as often happens with this dismal science, there is evidence on the other side as well. As Jim Manzi writes in an essay for the Cato Institute: “A series of randomized experiments… between 1968 and 1980… consistently found that the tested programs reduce the number of hours worked versus the existing welfare system.”

Standing tackles many other arguments against UBI. Everything from, it’s stupid to give money to both the rich and the poor to giving poor something for nothing to UBI leading to people spending money on alcohol and cigarettes to UBI being inflationary, is tackled with empirical evidence.

Standing also tackles the main issue of whether UBI is affordable. One of the ideas he offers in the book is that of a high carbon tax which will deter fossil fuel use, along with generating revenues for UBI. While this might make sense in the Western countries, in India, the taxes on petrol and diesel are already way too high.

Standing also talks about doing away with tax exemptions on offer. He also writes: “Wealth taxes, inheritance taxes, a tax on financial transactions and a tax on robots have all been mentioned as possible sources of finance for a basic income”.

Another interesting idea that Standing proposes is for Google, Facebook and other companies to pay for all the data which the users provide these companies for free and from which they make a profit. This could be shared with the users as a UBI, suggests Standing.

This is where the book fails for the Indian audience, which is of course not the author’s fault, given that he has written a general book on UBI and not something specific for India.

Economists and commentators who have written on UBI for India have made the case for doing away with many subsidies and exemptions. The problem is that doing so may not be politically feasible. How does any politician sell the taking away of food subsidies to the masses of the country? Or how does any politician justify the introduction of tax on agricultural income or the introduction of estate duty or doing away of subsidies on urea and other fertilizers?

Money can also be raised by selling assets of public sector enterprises, in order to be able to fund UBI. But will any government have the courage to do something like that?

Also, UBI experiments up until now have all been very small scale in comparison to anything that India will do on this front or is already doing for that matter.

Many questions remain to be answered when it comes to UBI in an Indian context. Nevertheless, for anyone looking to get a good feel of everything around UBI, Standing’s book is a good place to start.

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About the author

Vivek Kaul

Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times. His latest book India’s Big Government—The Intrusive State and How It Is Hurting Us, has just been published. He is also the author of the Easy Money trilogy.