Rethinking Welfare through Universal Basic Income | 07 Nov 2025

As India grapples with widening wealth inequality unseen since colonial times, automation-driven job displacement, and a fragmented welfare system plagued by leakage and exclusion, Universal Basic Income (UBI) emerges not as a utopian fantasy but as an urgent policy imperative. By offering unconditional cash transfers to every citizen regardless of income or employment status, UBI promises to cushion unemployment shocks, reward invisible care labor, and restore dignity to millions trapped in gig economy precarity. However, critics caution that UBI could strain public finances, fuel inflationary pressures, and potentially weaken the incentive to work if not carefully designed. It may also divert resources from essential public goods like healthcare and education. Hence, while the moral and social case for UBI is compelling, India must navigate its implementation prudently.

What is Universal Basic Income?  

• About: Universal Basic Income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive a minimum income in the form of an unconditional cash transfer. 
• Features:  
  • Universal: It is paid to all citizens or residents within a specific jurisdiction, regardless of their employment status, income, or wealth. 
  • Unconditional: It is provided without any work requirements or means tests (proving one's need for the payment). 
  • Periodic: The payment is made on a regular basis (e.g., monthly), not as a one-time grant. 
  • Cash Payment: It is delivered as cash, giving recipients the freedom to spend it as they see fit (rather than in-kind benefits like vouchers).

What are the Key Arguments in Favour of Universal Basic Income in India? 

• Superior Alternative to Fragmented Welfare Schemes: UBI offers a clean, transparent, and direct cash transfer, effectively eliminating the massive exclusion errors and corruption that plague India's current complex web of 950+ centrally sponsored schemes.  
  • It reduces the leakage and administrative overhead associated with the 'in-kind' transfer system (like PDS), ensuring the intended benefit reaches the poor directly via the digital infrastructure. 
  • The Economic Survey 2016-17 estimated food and fuel subsidies alone cost about 3% of GDP. 
    • A UBI delivered through the JAM (Jan Dhan-Aadhaar-Mobile) trinity offers a digitally verifiable solution, converting bureaucratic waste into a direct social dividend. 
• Essential Insurance Against Economic Shocks and Crises: UBI acts as a permanent, automatic stabilizer, providing an immediate financial cushion to vulnerable populations during unforeseen crises like the Covid-19 pandemic or climate disasters.  
  • It avoids the administrative delays and political targeting debates that characterize ad hoc relief measures, ensuring rapid aid when the formal economy grinds to a halt. 
  • During the Covid-19 lockdowns, the need for a safety net was exposed, with NITI Aayog noting that the pandemic disproportionately affected informal sector workers (over 90% of the workforce).  
    • A foundational UBI provides the economic security necessary for migrant workers and the self-employed to survive sudden income loss. 
• Enhanced Gender Equity and Women's Economic Agency: Providing an unconditional, individual cash transfer to every adult, especially women, significantly enhances their financial autonomy and bargaining power within the household.  
  • It implicitly recognizes the enormous, yet uncompensated, value of unpaid care work, a critical factor in India's low female labor force participation. 
  • The National Sample Survey (NSS) data indicates women spend an average of 299 minutes a day on unpaid domestic services compared to just 97 minutes for men.  
  • Pilots, like the SEWA-UNICEF Madhya Pradesh study, showed that cash transfers empowered women to invest in livestock and start micro-enterprises, increasing their say in economic decisions. 
• Stimulus for Grassroots Entrepreneurship and Innovation: By ensuring a basic income floor, UBI allows the poor to take calculated economic risks, fostering greater investment in productive assets, skill development, and small-scale business ventures.  
  • It serves as a de-facto seed capital, liberating people from the constant struggle of subsistence and the need to accept exploitative work. 
  • Moreover, with a guaranteed income stream, individuals gain the freedom to pursue creative and entrepreneurial ideas that might not yield immediate returns but contribute to long-term community development and innovation. 
• Investment in Human Capital-Health and Education: Unconditional cash flow enables poor families to make proactive investments in the long-term well-being of their children and themselves, moving expenditure away from immediate consumption towards health, nutrition, and schooling.  
  • It replaces the anxiety of poverty with the dignity of choice, which has proven mental health benefits. 
  • The MP pilot showed a dramatic increase in family expenditure on health and education. 
    • Additionally, the proportion of children with normal weight-for-age increased from 39% to 59% in pilot villages, indicating improved nutrition and health outcomes. 
• Mitigation of Job Displacement from Automation and AI: As India's economy modernizes, the threat of technological unemployment in sectors like manufacturing, logistics, and IT-enabled services, which rely heavily on routine tasks, poses a major risk to mass employment.  
  • UBI can serve as a Citizen’s Dividend, distributing the productivity gains from automation back to the populace. 
  • A NITI Aayog report projects gig economy workers, who lack traditional benefits, to grow to 23.5 million by 2029-30, and the threat of automation is real for formal jobs.  
    • UBI is presented as a futuristic mechanism to manage this "jobless growth" by de-linking income from work, preventing mass precarity. 

What are the Key Arguments Against Universal Basic Income in India? 

• Fiscal Unsustainability and Crowding Out Essential Public Services: A UBI set at a level meaningful enough to alleviate poverty would impose an unprecedented and unsustainable fiscal burden on the government exchequer, demanding massive tax increases or drastic cuts to other vital public spending.  
  • India already struggles with a high combined debt (Centre and States) that stood at over 81% of GDP in 2022-23, limiting borrowing space. 
  • The Economic Survey 2016-17 estimated a poverty-line-level UBI would cost approximately 4.9% of GDP (at 2016 prices). 
  • Diverting such a large share of the budget would fatally crowd out critical long-term public investments in education, healthcare, and physical infrastructure. 
• Disincentive to Work and Damage to the Labor Market: Providing an unconditional income floor could significantly reduce the labor participation rate, particularly among marginal or low-wage workers in the agricultural and construction sectors, fostering a culture of dependency.  
  • This effect would be most pronounced in the informal economy, which accounts for over 90% of India's workforce, potentially leading to labor shortages and wage distortion. 
  • Evidence from global trials, such as the Negative Income Tax (NIT) experiments in the US, showed a decline in hours worked, particularly among secondary earners and mothers.  
  • India's urban Worker-Population Ratio (WPR) for ages 15+ was already low at 46.8% (April-June 2024); an assured income might further weaken the incentive to seek formal or steady employment. 
• Risk of Demand-Pull Inflation and Erosion of Real Value: Injecting a massive, continuous stream of unconditional cash into the economy, especially without a corresponding increase in the supply of goods and services, carries a severe risk of demand-pull inflation.  
  • This inflationary pressure would disproportionately affect essential items like food and housing, negating the real purchasing power of the UBI for the poor. 
  • India’s Consumer Price Index (CPI) inflation was already elevated, reaching 5.49% in September 2024, showcasing existing supply side rigidities.  
    • If UBI increases the effective demand for goods like rent and food in localized, poorly connected rural markets, it could lead to price spirals that leave the poor no better off in real terms. 
• Ethical and Equity Concerns over True Universality: The 'Universal' nature of UBI means distributing scarce public resources to the non-poor and even the wealthy, creating a significant opportunity cost in a highly unequal nation.  
  • Critics argue that this non-targeted approach is an inefficient and unethical use of funds that should be strictly focused on the most vulnerable groups. 
  • India is one of the world's most unequal nations, where the top 10% own over 77% of the total national wealth, according to some estimates.  
    • Providing the same cash transfer to this group as to an impoverished landless laborer is fundamentally regressive and wastes resources that could have funded crucial development or targeted poverty alleviation schemes. 
• Undermining Existing, Targeted Welfare Schemes: UBI is often proposed as a replacement for fragmented existing subsidies and welfare schemes, but eliminating programs like the Public Distribution System (PDS) or MGNREGA could severely harm specific, highly vulnerable populations.  
  • These in-kind and work-based schemes are often superior for ensuring basic entitlements and stabilizing minimum wages. 
  • MGNREGA provides a statutory right to employment, stabilizing rural wages and acting as a crucial safety valve for millions of registered workers during economic downturns. 
    • Replacing this job-guarantee scheme with a small UBI cash transfer could strip the most vulnerable of their current, non-negotiable entitlements to food (PDS) or job security (MGNREGA). 
• Implementation Challenges and Exclusion in the Last Mile: Despite the rise of the JAM (Jan Dhan-Aadhaar-Mobile) infrastructure, significant last-mile operational hurdles, including low digital literacy and weak banking penetration in remote areas, remain.  
  • A sudden national UBI rollout would face high exclusion errors, leading to a fresh wave of administrative corruption and denial of benefits to those most in need. 
  • Reports have shown that Aadhaar-linked payment failures and inactive Jan Dhan accounts continue to plague Direct Benefit Transfer (DBT) schemes, with authentication failures reportedly as high as 51% (Dvara Research). 
  • These technological and access gaps make the smooth and universal delivery of UBI extremely challenging for India's massive and diverse population. 
• Misallocation and Spending on "Temptation Goods": A key argument against unconditional cash is the concern that beneficiaries, especially men within the household, might misspend the UBI on non-essential or harmful "temptation goods" like alcohol, tobacco, or gambling, rather than on nutrition, education, or productive investments.  
  • This risk is greater if the UBI is not credited directly to women's accounts. 
  • While many pilot studies found that most cash was spent rationally, the public perception and political opposition remain strong based on this concern.  
    • Deaths and diseases due to tobacco use already deprive the Indian economy of an estimated INR 1773.4 million annually, which is over 1% of the GDP, critics argue that this can be exacerbated by UBI.  

What Steps can India take to Make Universal Basic Income a Viable Policy for the Future? 

• The Incremental 'Welfare Floor' Approach (MPBI): Instead of launching a full UBI immediately, India should adopt a Modified and Phased Basic Income (MPBI) strategy, starting with a non-poverty-line Universal Basic Floor.  
  • This transfer, set at a fiscally manageable 1-1.5% of GDP, would act as a structural base, providing a minimum common safety net for all citizens, while keeping existing critical schemes like PDS and MGNREGA intact initially. 
  • This low-cost, universal foundation minimizes exclusion errors while allowing time for fiscal rationalization to generate the resources for subsequent increases. 
• "Quasi-Universal" Focusing on Vulnerable Demographics: To reconcile the high cost of true universality with the goal of poverty reduction, the initial MPBI rollout must prioritize the most vulnerable, identifiable groups that have the highest social returns. 
  • This means adopting a 'universal within a category' approach, guaranteeing the basic income to all women, the elderly (60+), and persons with disabilities.  
  • This targeted universality is politically feasible, fiscally containable, and maximises impact on gender equity and social security. 
• Mandatory, Transparent Subsidy Rationalization Fund: To secure the financial backing for UBI, the government must establish a Dedicated UBI Fund solely financed by the consolidation and transparent withdrawal of demonstrably inefficient, non-merit subsidies (like certain tax exemptions, power, and high-income fuel subsidies). 
  • This fund must operate with legislative ring-fencing, making its revenues immune to being diverted for other budgetary uses and creating a clear mechanism for its annual replenishment and growth. 
• UBI as a Conditional Replacement for Inefficient Schemes: The replacement of existing schemes should be gradual, conditional, and evidence-based, not an immediate political fiat.  
  • UBI must only replace those centrally sponsored schemes identified by rigorous, third-party Social Audits to have high leakage, corruption, and low outcome efficacy, while retaining and strengthening high-impact programmes like the National Food Security Act (PDS) and MGNREGA until UBI reaches a viable, poverty-line equivalent value. 
• Strengthening the JAM+ Infrastructure for Error-Free Delivery: The feasibility rests entirely on improving the digital delivery infrastructure, extending beyond the current JAM (Jan Dhan-Aadhaar-Mobile) Trinity to a robust JAM+ system.  
  • This involves mandatory expansion of digital literacy and banking infrastructure in remote and tribal areas, and implementing a real-time Aadhaar/Biometric Failure Grievance Redressal mechanism with alternative (e.g., OTP or manual) withdrawal options to eliminate last-mile exclusion errors for the digitally marginalized. 
• Fiscal Federalism and Cooperative Funding Mechanism: Given that both the Union and State governments operate welfare schemes, UBI implementation requires a cooperative federal mechanism to share the fiscal load and political risk. 
  • A Joint UBI Commission should be established to mandate a clear cost-sharing formula (e.g., 60:40 or 50:50) between the Centre and States, ensuring State-level schemes are integrated without disrupting state finances or creating political conflicts over revenue allocation. 
• Legally Entrenching UBI as a Citizens' Social Right: To ensure political commitment and prevent the future rolling back of the scheme, the MPBI should be legally established, potentially through a new Social Security Act, as an entitlement rather than a discretionary dole.  
  • This legal embedding elevates the UBI above transient political cycles, guaranteeing its permanence and allowing citizens to hold the government accountable for the adequacy and regularity of the transfer, ensuring long-term policy stability.

Conclusion:

Universal Basic Income holds transformative potential to redefine India’s social contract by ensuring dignity, security, and opportunity for all. Yet, its success depends on prudent fiscal design, robust digital delivery, and phased implementation. A carefully crafted, inclusive UBI can complement and not replace existing welfare guarantees. If pursued wisely, it could mark a decisive step toward a just and resilient India. As India stands at the crossroads of growth and inequality, UBI reminds us that true progress is not when wealth multiplies, but when dignity becomes universal.