In a socialist welfare state, the goal for the government is to help the poor. The government gives different subsidies to the needy section.
But the problem is in ensuring that the subsidy reaches the poor and needy without leakages. This problem is more severe in a country like India with high levels of corruption. Another issue is to figure out who should get which subsidy, to make sure only the needy get the help. Subsidies also distort the market forces of supply and demand. example: In the past diesel was subsidised heavily, families for which a petrol car made sense too bought diesel cars. Because of free electricity, there is excessive use of power pumps which is reducing the underground water table.
Universal Basic Income (UBI) is an idea where Government directly gives cash to all. Benefits of UBI are 1. Solves the issue of trying to figure out who is to be given which subsidy, 2. Saves cost in creating elaborate mechanisms to deliver subsidies, 3. Help reduce wastages and leakages, 4. Distortion of market forces of supply and demand. So in India, there was a call by some experts to go for Universal Basic Income.
The major issue with UBI is not in theory but in practice. In theory, it is seen as an alternative to other forms of subsidy, in reality, if introduced it will become an additional subsidy. Where is the money?
A low per capita income country like India cannot afford UBI along with huge amounts of other subsidies.
There are concerns also about how will one deliver the money. Many in India still don’t have access to formal banking. From around 6,00,000 villages in India, hardly 5,000 have bank branches. Also, how do we make sure that the money is used for proper end purposes and isn’t spent on liquor, gambling, etc.
Moreover, if people get money even if they don’t work this will increase the wage rate at the lower end of the labour market. This will affect the availability of labour for industry and agriculture.
Ideal way forward is to better the ways in which present subsidies are delivered. UBI may end up becoming just another subsidy among many already there.
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