Is it time for India to introduce a Universal Basic Income?

Professor Bhanumurthy, the ILO says 83% of the unemployed population in India are the youth. Given this grim scenario, it is time to introduce a UBI?

N.R. Bhanumurthy: We must understand the concept of UBI. It is universal and covers the basic needs of the people. In India, we actually have different forms of UBI. Perhaps we can call this a semi-UBI. In the last few years, various versions of a UBI have been implemented in India, such as cash transfer schemes for farmers and women. Many States have begun cash transfers even for unemployed youth. A type of basic income support need not be universal. So, in that context, I am not sure whether we can implement the pure concept of a UBI in India.

I think proponents of UBI make a distinction between social safety nets like the ones you point out and a base income regardless of employment status. Professor Arun Kumar, your response?

Arun Kumar: People have been talking about UBI since 2015. There are several factors responsible for this, but primarily, it is the lack of demand in the market. Demand contraction stunts growth. There is unemployment and because of it, people don’t have adequate incomes. As a result, demand in the market contracts and the rate of growth begins to decline.

So, how do we generate demand? How do we generate incomes in the hands of people who don’t have employment? That is where the idea of a UBI comes in, I think. I agree with Bhanu that goods or money is being given by the state to the people. That is semi-UBI. And that is where the problem lies. In capitalist philosophy, you pay for work done. You don’t pay for work not done. So, in a sense, it is a failure of the capitalist system that it is unable to generate enough employment and incomes.

In the 1980s, the World Bank had warned that several Indians would fall behind and suggested the creation of safety nets. This was tried in the mid-2000s in India with the right to employment, food, education, and so on. But the problem is, if you give money for no work, that doesn’t give the person dignity. So, providing work is essential. Otherwise it will lead to alienation in society, because those who have incomes and those who don’t will be divided and those who don’t have incomes will be labelled as ‘good for nothing’. There will also be political and social implications. So, I think we must generate enough employment. We can do this provided our policies are structured right.

The ILO report suggests that the reasons for slow growth in jobs creation lie in the surge in digital industries where the assembly line is not the shop floor, but software and applications, and the use of technologies such as AI. India’s Finance Minister and the Chief Economic Adviser have emphasised that private industry should invest more in labour-intensive sectors. Is that really enough to generate the kind of mass employment required in India?

Arun Kumar: The government needs to do more. If you look at the Budget, capital investment has gone up, but it is going into capital-intensive sectors. There have been cuts in real terms in labour-intensive sectors such as education and health and in the rural employment guarantee scheme, which generates a lot of employment. We have similar problems in rural development and agriculture. So, the government has to be more sensitive to generating employment by focusing on employment-generating sectors. The capital items that are being funded include the railway freight corridor, highway projects, and the power sector. These do not give much direct employment. Earlier projects in construction would generate employment, but now people work with bulldozers and cranes, employing 10 people instead of hundreds. So, while the efficiency of construction may go up, employment generation doesn’t take place.

You pointed out the ILO report. There is not only AI but a lot of automation taking place. Think about the banking sector, for instance. Its work has expanded enormously, but the staff strength has been cut to half because we don’t need to go into the bank branch any longer. We can do all our banking work on our laptops and mobile phones.

If we look at the trade sector, too, which is the second biggest employer after agriculture in India, e-commerce has been growing exponentially in the last few years at the expense of neighbourhood stores.

Twenty years ago, people talked about jobless growth. Now, they talk about job-loss growth. People who are getting displaced are unable to find work elsewhere, so they have to generate work for themselves. And that is why there has been a growth in the self-employment sector at very low income levels.

The phenomenon that you just called as job-loss growth is what the proponents of UBI point to. Professor Bhanumurthy, your response?

N.R. Bhanumurthy: As Professor Arun Kumar mentioned, the issue of unemployment in the recent period is a very serious issue, not only in Indian context, but globally. The government came up with the Pradhan Mantri Awas Yojana to provide housing. This will have a huge impact on the overall social safety net at the rural level. In fact, my study has shown that the rural housing scheme has had a huge multiplier impact on employment opportunities not only directly but indirectly as well, seen in the rise in demand for core sectors such as steel, cement, and electrical components. I think the government was very clear that its policies would focus more on providing employment opportunities in addition to growth. So, it is aware of this issue.

Where I don’t agree with Professor Arun Kumar is yes, there is uneven distribution of incomes because of the kind of growth he described, but there has been growth in wages, though this is much smaller than the growth in profits. That is what the Economic Survey graph suggests. So, in that sense, some of us have been suggesting a re-look at the production-linked incentives schemes that the government announced that is being given for some parts of the manufacturing sector post-COVID-19.

In terms of AI leading to job loss… I don’t think the ILO says there is job-loss growth or jobless growth. I think what it says is that going forward, there could be an impact on employment opportunities because of this. I am sure the labour market will adjust to those innovations. Right now, I think there is a mismatch between the skills demanded and the skills supplied.

Right, so you’re suggesting an intervention in education to upgrade skills. Even so, jobs created in the fourth industrial revolution, to use Klaus Schwab’s phrase, are either extremely well paying, or highly precarious, like gig work, leading to massive income inequality. Do we not need a UBI to bridge this gap?

N.R. Bhanumurthy: Well, I think we need to be clear about whether India is ready for UBI. In my opinion, we need to focus more on universal basic social safety nets. We are not there. Social safety nets are very skewed between States or even within States. So, I suggest that the the Central and State governments focus more on social safety net universalisation.

Arun Kumar: If the government raises more funds from direct taxes, it is possible to bridge this gap, because our direct tax to GDP ratio is only about 6.25%. Many developed countries have a much higher percentage. While we cannot compete with the developed countries, we can raise the direct tax to GDP ratio marginally at least. It is not that we can’t do it, it is a question of the political will to do it.

Listen to the conversation in The Hindu Parley podcast