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Basic income is the best bet to provide resilience in times of COVID-19

Basic income is the best bet to provide resilience in times of COVID-19

1. CONTEXT OF THE NEWS

Due to the COVID-19 pandemic, the share of income going to people who rely solely on labour is continuously decreasing and the becoming uncertain.

This editorial makes a strong case for universal basic income during this testing time.

2. CRISIS DUE TO THE COVID-19

As a consequence of COVID-19 epidemic, India is facing three crisis simultaneously viz. medical, economic and distributional.

Furthermore, in the absence of well thought policy steps and their bold implementation a fourth crisis of social violence threatens in the times ahead.

2.1 Medical Crisis

  • The spread of COVID-19 and associated deaths is the most obvious and immediate threat.
  • While India has performed better than many countries until now, the upward trend in the recent times in India is worrisome.

2.2 Economic Crisis

  • The global economic slowdown began well before the pandemic struck the world and so was the case for India.
  • Experts say that a global recession was already is the making as global rentier capitalism had generated a bubble economy in which a plutocracy was taking more and more of the income, and finance was indulging in speculative rent-seeking.
  • In India as in the world, the share of income to people relying solely on their labour as the primary source of income is on the decline and their future remains uncertain.
  • Therefore, even a minor shock can drive this section from debt into destitution, bankruptcy and impoverishment.
  • In addition, the recent events in India in the wake of COVID-19 epidemic is a major shock to this section.
  • The crisis has been accentuated by the combined effect of economic slowdown and the nation-wide lockdown resulting into unarguably the biggest demand shock that the Indian and world economy has experienced in the globalisation era.

3. THE ECONOMIC CRISIS

3.1 Extent of the crisis  - Demand Shock

  • Barring the richest 20%, all levels of the society have experienced a decline in incomes.
  • The income is anticipated to decline even more in the months ahead.
  • This will surely result into a decline in the aggregate demand (demand shock) for goods and services.
  • Millions are unable to maintain their existing standards of living.
  • As a precautionary measure, the wealthy are trying to increase their saving rate.
  • However, the demand shock is more threatening than the supply shock.

3.2 The more threatening Demand Shock

  • The demand shock will have a negative multiplier effect.
  • Many millions have less money at their disposal, while millions of others will opt to spend less owing to the uncertain times that lie ahead.
  • This economic behaviour will drag many people into unsustainable debt.
  • The demand shock will worsen due to reverse migration of people to their villages.
  • This migration is estimated to be to the tune of 40 million.
  • The people, who had earlier migrated to the cities, would remit money back to their families who were dependent on them.
  • Following the migration back to the villages, these people would not only be unable to remit any more money to their dependents but now themselves depend on their families for support. This further threatens the demand shock.
  • The situation is very fragile and ominous because the COVID-19 pandemic is expected to in India for at least the next year.
  • There are also apprehensions that the COVID-19 crisis may even go out of control given that protective and preventive measures are becoming harder to implement and maintain especially in conditions of an economic slowdown, this further rings the danger bell.

4. POLICY IMPLCATIONS OF THE CURRENT SITUATION

4.1 Policy conclusion of demand shock conditions

  • The looming threat of demand shock leads to one vital policy conclusion.
  • The Macro-economic policy must boost aggregate demand while at the same time reducing the probability that the coronavirus will devastate communities.
  • Presently, the government is relying on expansion of MNREGA to provide employment to the returning migrants.

4.2 Problems with MNREGA

  • MNREGA involves a number of convoluted procedures and complicated administration processes.
  • The work at MNREGA involves physical contact and close-proximity between the workers, which increases the risk of contracting and spreading the COVID-19 infection in the rural areas.
  • Hence, a wiser and more yielding method would be to transfer cash directly to the workers listed under MNREGA.
  • Some economists suggest the expansion of free food grains through the Public Distribution System. While such a step was necessary during the lockdown to ensure food security, it is unlikely to boost demand as the economy opens up.

5. A CASE FOR UNIVERSAL BASIC INCOME

5.1 Quasi-universal transfer of basic income

  • Noble laureate Abhijit Banerjee advocates a basic income for the bottom 60% of the population.
  • The process to identify the bottom 60% would be a complex, tiresome and futile process marred by arbitrariness and inefficiency even during the most propitious of times.
  • Given the nature of this unprecedented social and economic crisis, millions will face the wrath of fluctuating incomes that will move them in and out of poverty line repeatedly within weeks.
  • The writer suggests a quasi-universal transfer to all usual residents of communities and returning migrants.
  • This could be offset by a small increase in taxes on luxury items consumed or used by the wealthy.
  • This will ensure a modest level of cash resource at everyone's disposal and will boost demand for basic local goods and services, which is the need of the hour for the Indian economy.

Problems in implementation of Basic Income

  • The biggest hurdle in implementation of a basic universal income for the impoverished is last mile connectivity and distribution of cash through financial institutions.
  • The Jan Dhan accounts have increased financial inclusion and it is only after the system begins to pump out cash will the financial system respond to the need to reach the last mile.
  • Post Payments Bank system in India hold tremendous potential to ensure an efficient and people-friendly last mile delivery for people excluded from the Jan Dhan system.

6. CONCLUSION

We as a society need to understand that a chain is only as strong as its weakest link.

For society to have the required resilience to survive this crisis and to recover from it, everybody must have the capacity to try to respond responsibly.

If some groups are left vulnerable and deprived, all groups will be vulnerable and deprived. A basic income would give meaning to the claim that ‘we are all in this together’.

ADDITIONAL INFORMATION

Universal Basic Income (UBI)

  • Universal Basic Income (UBI) is a theoretical governmental public programme for providing all citizens nationally, regionally or locally with a given sum of money, regardless of their income, resources or employment status.
  • The UBI is aimed at reducing poverty, increase food security and achieve the constitutional objective of equality among citizens
  • The underlying principle behind Universal basic income is the idea that all citizens are entitled to a liveable income to ensure a dignified life, irrespective of the conditions and circumstances of their birth.

Advantages of Universal Basic Income

  • It can drastically reduce Poverty and vulnerability
  • It will give effect to the vision of equality enshrined in our constitution.
  • It will lead to an increased base of middleclass.
  • It will provide safety net against health, income and other shocks.

Disadvantages of Universal Basic Income

  • Problems with identification of beneficiaries and implementation.
  • It will be a disincentive to work
  • It will distort the labour market
  • Purchasing power of cash transfers can lead to severe market fluctuations.

Quasi-basic income schemes

  • The 2016-17 Economic Survey and the International Monetary Fund (IMF) had once proposed a quasi-basic income schemes that excluded the top 25% of the population as an effective means of poverty alleviating and tackling hunger and malnutrition.