Mentor’s Comment

As automation, artificial intelligence, and widening inequality reshape global economies, India faces an urgent need to rethink its welfare model. Universal Basic Income (UBI) , once dismissed as utopian, is emerging as a viable economic tool to balance growth with inclusion, stabilize consumption, and future-proof citizens against technology-driven disruptions.

Introduction and Why in the News

India’s wealth gap is at a 75-year high, and technological transformation is outpacing job creation. The article argues that a Universal Basic Income could act as a stabilizer for an economy characterized by automation-led job loss, consumption inequality, and welfare fragmentation. UBI thus represents both an economic necessity and moral evolution, a reform that can ensure social security while sustaining demand in an AI-driven economy.

Understanding UBI in the Economic Context

1. Concept: A periodic, unconditional cash transfer to all citizens, regardless of income or employment.
2. Economic Foundation: Acts as a floor for consumption and stabilizer of demand during economic downturns.
3. Rationale in India: Addresses inefficiencies, leakages, and exclusions in existing welfare subsidies and improves fiscal targeting through direct transfers.
4. Global Relevance: Countries like Finland, Kenya, and Iran have experimented with variants of basic income to address automation shocks and inequality.

Why India Needs a New Welfare Model

• Automation and Jobless Growth:

1. 1. India’s labour-intensive sectors are losing relevance as AI and robotics replace routine work.
   2. A 2023 McKinsey Report estimates 40-45% of Indian jobs risk automation by 2030.
   3. Consumption Inequality: The top 10% hold over 40% of total income, weakening demand from lower strata, a key factor behind India’s K-shaped recovery post-COVID.

• Fragmented Welfare Spending:

1. 1. Over 950 central schemes exist; only 20% reach intended beneficiaries (NITI Aayog, 2022).
   2. Rationalizing and merging subsidies could free 1-2% of GDP, enough to fund a phased UBI.

Fiscal Feasibility and Implementation Models

1. Budgetary Realignment: A UBI costing ₹7,500 per person annually = ~1% of GDP, fiscally manageable by pruning inefficient subsidies.
2. Digital Readiness: India’s JAM Trinity (Jan Dhan-Aadhaar-Mobile) enables transparent Direct Benefit Transfers (DBT) to 450+ million beneficiaries.
3. Phased Approach:
   • Start with vulnerable groups (elderly, women, informal workers) and expand gradually.
   • Link with automation tax or digital economy levy to ensure sustainability.
4. Behavioral Economics View: Unconditional transfers improve human capital investment (nutrition, education) without creating disincentive to work, proven in Madhya Pradesh SEWA UBI Pilot, 2013.

UBI as an Economic Stabilizer

1. Counter-Cyclical Tool: Maintains aggregate demand in economic slowdowns; ensures liquidity among lower-income households.
2. Productivity Boost: Financial security allows workers to upskill and pursue entrepreneurial ventures instead of insecure subsistence jobs.
3. Gender Dividend: Recognizes unpaid care work and enhances female labour participation, a major economic multiplier.
4. Rural Resilience: Ensures income continuity against climate shocks, agrarian distress, and market failures.

Challenges in Adopting UBI

1. Fiscal Trade-offs: High recurring costs could strain the fiscal deficit if not balanced by rationalization of subsidies.
2. Inflationary Pressure: Sudden increase in liquidity may spike prices unless accompanied by supply-side reforms.
3. Exclusion Risks via Aadhaar/DBT: Digital divide and authentication errors can replicate old exclusion patterns.
4. Political Economy Resistance: Targeted benefits create patronage networks; universalization dilutes control, making reform politically sensitive.

Global Insights for India

India can blend these experiences into a hybrid model: quasi-universal, fiscally prudent, and tech-enabled.

Conclusion

A Universal Basic Income is no longer a moral luxury, it is an economic inevitability in a future where automation, inequality, and climate shocks converge. By realigning subsidies and leveraging digital infrastructure, India can embed economic dignity into fiscal policy. UBI is not about welfare dependency, it is about stabilizing markets through empowered citizens.

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