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Which among the following is/are the cons of Universal Basic income?

  1. It can trigger inflation.
  2. Expanding the middle class
  3. Fall in labor force participation rate

1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. All of the above

1 Answer

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Best answer
Correct Answer - Option 3 : 1 and 3 only

The correct answer is 1 and 3 only.

  • Universal Basic Income (UBI) is a program for providing all citizens of a country with a given sum of money, regardless of their income, resources, or employment status.
  • Objectives
    • to prevent or reduce poverty
    • to increase equality among citizens
  • Its evolution can be traced back to the Western Developed World because of the threat of automation-induced job losses.
  • Features 
  1. Payments at periodic regular intervals
  2. Payments in cash 
  3. Payments to individuals,
  4. Universality
  • Reasons behind the Scheme in Indian Context
    • Today, the average Indian family’s monthly income is roughly Rs 50,000, a 2,000 times increase since 1938.
    • The poorest 10% of Indian families earn a mere Rs 5,000 a month. 25 million Indian families earn just a tenth of what the average Indian family earns.
    • And, 50 million households earn just a fifth of the average Indian family.
  • The Economic Survey 2016-17 suggested replacing all current cash transfers with universal basic income and not supplement the social welfare schemes.
    • JAM (Jan Dhan, Aadhar, and Mobile) must be prerequisites for a successful UBI​.
  • Advantages:
    1. Fights Poverty and vulnerability
    2. New social contract
    3. Better targeting of poor
    4. Fighting technological unemployment
    5. Supporting unpaid care workers
    6. Expanding the middle class (Hence, Statement 2 is incorrect as it's an advantage, not a disadvantage.)
    7. Insurance against shocks
    8. Psychological benefits
  • Disadvantages
  1. Conspicuous spending (It can trigger inflation) (Hence, Statement 1 is correct.)
  2. Disincentive to work
  3. Gender disparity
  4. Poor fiscal capacity
  5. Distort labor Market (Fall in labor force participation rate) (Hence, Statement 3 is correct.)
  6. The political economy of universality
  7. Exposure to market risks

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