Article: Budget 2018: India’s Experiment with Universal Basic Income

Compensation & Benefits

Budget 2018: India’s Experiment with Universal Basic Income

With tectonic changes in the economy underway, we take a look at whether its the right time to consider Universal Basic Income to absorb-in the transitory shocks in the workforce.
Budget 2018: India’s Experiment with Universal Basic Income

Over the course of history, technological changes have played an increasingly defining role in the efficient utilization of resources. With the advent of free market economics, innovations into creating better modes of production were incentivized. And we haven’t looked back since. 

Today, the advancements in the fields of robotics, machine learning, and artificial intelligence have taken the spotlight in the business transformation debate. With sectors like IT and finance already finding ways to deploy new-age technologies to reduce costs and increase margins, others sectors of the market are not too far behind in realizing the same. Even the labor-intensive industries like manufacturing are witnessing this inevitable transition. 

With such a significant shift within businesses underway, markets are bound to experience transitory shocks. As expected, sectors like IT have witnessed massive layoffs last year driven, in part, due to the adoption of newer technologies. Even primary and secondary sectors of the economy have been seeing a fall in productivity, despite a higher labor participation. Several other sectors urgently require significant re-skilling training to effectively contribute to in this changing paradigm. As such shocks are bound to recur and create disruptions in the coming year; it would be opportune if the budget, at least, starts planning a safeguard for such situations.

The Concept of UBI

One of the responses to economic shifts (as a result of the change in technology) has to been to test out the idea of a Universal Basic Income (UBI). From Canada to Finland and to developing countries like Kenya, many find themselves in the middle of piloting their own UBI programs and to see whether the results create a substantial shift in employability rates. Although the benefits of an overreaching scheme that provides all individuals with a basic amount (irrespective of the work that they do) are still debated, economic realities are slowly forcing nations to provide a protection net to their workforce from falling into oblivion.   

This has been one of the primary reasons that UBI is increasingly becoming a part of the policy-makers lexicon. Although developed economies in the world face a higher chance of an increase in unemployment levels due to workplace automation, India isn’t essentially that far behind. It seems to be more of a matter ‘when’ rather than ‘if’, and if the recent study by McKinsey Global Institute, titled ‘Jobs Lost, Jobs Gained Report’  is anything to go by, the future projections within the Indian workforce entails massive shifts within the structure of jobs market. This includes the displacement of a significant portion of the workforce in years to come. Although, no future projection is really set in stone, and the study also projects an over increase in the total employed workforce overall, for a period leading up to 2030; the provision of a Universal Basic Income can help the government create a safety net that allows the workforce to deal with change in skill preference that comes with newer technologies and, in turn, help them get back up on their feet. 

UBI and the Indian context

Although a great policy on paper, experts are still bitterly divided on the benefits the policy might procure within the Indian markets. The following points are certainly of merit and should be an integral part of any discussion on UBI, within the Indian context. Firstly, schemes like UBI are expected to restrict in labor mobility and hamper the participation levels, thus, distort the labor markets; this leads to a long-term effect on growth and inflation. Secondly, the scheme will put massive pressure on the already-stressed spending of the government. India today supports its masses by implementing a host of government-run and funded social welfare schemes. Economic experts are of the belief that in addition to these if a policy like UBI is implemented, that assures a general sum of money every month, the fiscal pressure on the economy will be unmanageable, at least in the current state. 

One proposition to balance out the latter challenge is to implement the basic income scheme in place of other social welfare schemes. This means replacing government funding and subsidies with a monthly lump-sum amount which gets transferred directly to an individual’s account. This idea of replacement has found many proponents, from the IMF, which is a statement said that India stands to benefit from a UBI scheme and the removal of PDS and energy subsidies. Our own Finance Minister has advocated the concept of Universal Basic Income as an alternative to the various social welfare schemes while tabling The Economic Survey 2016-17. 

But such either/or solutions don’t necessarily make the situation of unemployment, and by extension, the problem of poverty, any easier to deal with. The implementation of UBI can be rigged with similar systemic inefficiencies that plague other social schemes. Furthermore, since the scheme would depend on the coordination between the central and state governments, it would be open to political biases, which if the experience is anything to go by, can derail the implementation of even the most well-crafted policies. 

The chapter on Universal Basic Income in The Economic Survey of 2016-17 provides an insight into the governments' views on UBI. Although it is being considered a strong alternative to many welfare schemes, undoubtedly, a hasty implementation would do more harm than good.  To move ahead in a fruitful manner, a controlled test on the applicability of UBI across various layers of the workforce demography needs to be done. As has been the case with Finland and Scotland,  before reaching a singular conclusion of UBI, testing out its efficacy within Indian markets is of indisputable importance. Only then can the best form be adapted to meet the needs of a changing workforce.  

Rutger Bregman, a Dutch historian and basic income advocate once said "Remember, basic income is not one idea. It's a direction of thought." Perhaps, it’s time to take first steps towards that direction.  And the Union Budget of 2018  can be defining in its move towards creating a fiscal framework, which can help achieve a dream of providing a national UBI scheme, that is tuned to helps millions battle unemployment and poverty. 


(This is the fourth of an eight-part series of the People Matters: The Budget Series)

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Topics: Compensation & Benefits, #Budget2018, #Featured

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