Is UBI for Indians a Good Idea?

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Why is Milton Friedman important to history? Well, he developed and promoted numerous free-market economic theories. The most prominent, and one gaining lot of attention off late, is the idea of Universal Basic Income (UBI). In 1962, he advocated a minimum guaranteed income via a negative income tax. Not much later, Martin Luther King Jr, in 1967, evoked a spark on this subject. He said that the only solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income. The idea, since then, has been an accepted norm in many countries. And citizens of many countries across the globe are still arguing for it. The recent case was of the Swiss. They casted their votes and registered their opinions on the idea of UBI. 'No', they said. Voters rejected the proposal 77% to 23% because of its prohibitive cost and implicit reward for idleness.

Let's keep the global markets aside for a while and focus on Indian economy. Home to the largest number of poor (as per a 2012 survey), can a minimum guaranteed income for India solve the troubles?

We came across an article in the Economic Times that answers this question best by drawing some valid points. The moot idea around which the article revolves is this: India's greatest inequality is not in income but in opportunity. The article states that the elite effortlessly reproduce themselves. Their mediocrities can flourish because they have access to the best resources. On the other hand, the brightest minds in villages have fewer chances of progress because of inadequate resources. The conclusion, in this case, is that a guaranteed income can be a soothing, but not a cure-all.

UBI has other flaws as well. It can be a double edged sword during a recession when the productive economy is not generating enough tax. During these already troubled times, funding for UBI would be constrained. Further, beneath this simple pitched solution, lie many complex questions. Some to be thought for are - How, and who, will define the minimum standard to be guaranteed? How do we define for different living costs in different regions? What will be the social consequences if the free money is used for undesirable activities (eg. drugs, tobacco, etc.) And many more of such kind...

As far as our views go, we believe India needs a reform on the inequality front and not the income front. No doubt that an additional dole of money in hand will make Indians richer. But that alone can't shift the progress curve. It would be just the beginning of the end. This we say is because India's net 'Gini index of inequality' - based on income net of taxes and transfers - stood at 51.36 in 2013. This was as against 45.18 recorded in 1990. This records as one of the highest levels of inequality in the Asia-Pacific region.

And this rise in income inequality is due to the lack of access to opportunity for the poor. Not every Indian has access to basic factors such as education and employment. Other factors include the capture of subsidies by the rich, skewed distribution of wealth, and the rural-urban income gap. And as a result, the income divide has just become more pronounced. If treated with scant importance, this can pose many problems ahead. In fact, India's most valuable asset, the youth, could become one of its biggest liability if this gap keeps growing.

And the scary part is that the problem of inequality is just one part of the puzzle that remain as a concern for the Indian economy. Vivek Kaul, editor of Vivek Kaul's Diary, has just launched the Vivek Kaul Letter which outlines some serious threats that lie ahead for the Indian economy.

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