Is a Universal Basic Income feasible?

The idea of a Universal Basic Income (UBI) in India has gained attention in recent weeks. While a UBI could go a long way towards eradicating poverty and reducing the problems with the current welfare system, its high fiscal cost and a lack of necessary financial infrastructure make it implausible for now. While there is merit to introducing a UBI, there are major problems. The most obvious is the large fiscal cost. The Economic Survey estimates that a UBI of INR7,620 (US$113) a year would almost completely eradicate absolute poverty in India. This appears to be a low number, given that the World Bank’s definition of the global poverty line equates to over US$600 a year. Nevertheless, even if we use the numbers from the Economic Survey, a payment of INR7,620 a year to all of India’s 1.25bn people would cost around INR10trn per annum, equivalent to 8% of GDP. Subsidy expenditure was worth 1.7% of GDP in FY15/16, while we estimate that other welfare programmes (such as the child development and rural income schemes) totalled another 3% of GDP. Even if these existing programmes were totally scrapped and replaced by the UBI, this would still leave an additional cost of 3.3% of GDP. This is almost as large as the existing budget deficit.