India is on the cusp of a transformative shift in demography. With over 65 per cent of its population under 35, the country stands poised to reap its demographic dividend — a period where the working-age population outnumbers dependents. According to the United Nations Population Fund (UNFPA), this dividend will last until 2040, presenting India with a unique opportunity to enhance economic growth, reduce poverty, and spur development.
However, while India’s economy has grown, challenges like job creation, workforce skill enhancement, and economic security remain. Here, a Universal Basic Income (UBI) can serve as a policy intervention, complementing efforts to address these issues. A well-designed UBI could offer a safety net, foster inclusion, and distribute the benefits of growth more equitably.
India’s demographic dividend is time-sensitive. To fully benefit, India’s working-age population must have access to quality education, jobs, and skills. PLFS (2020-21) data shows a labour force participation rate of 41.6 per cent, with much of the job growth concentrated in the informal sector, where wages are low, and job security is lacking. Further, the CMIE reported a 7.95 per cent unemployment rate in July 2024, with youth unemployment even higher. Without targeted interventions, structural unemployment and rising income inequality could become long-term issues.
While programmes like Skill India and Atmanirbhar Bharat are crucial, they should be accompanied by policies like UBI to ensure economic security for those excluded from formal employment.
Social security
UBI proposes a fixed, unconditional sum of money for all citizens, offering a basic income regardless of employment status. In India, UBI could address poverty, inequality, and social security gaps:
Poverty and income inequality: India’s growth hasn’t translated into equitable wealth distribution. The World Inequality Report 2022 highlights that the top 1 per cent of the population holds over 22 per cent of the national income, while the bottom 50 per cent holds only 13 per cent. UBI could lift millions out of poverty, reducing the wealth gap. Trials in Madhya Pradesh by SEWA and UNICEF showed that direct cash transfers led to improved spending on education, health, and nutrition, positively impacting quality of life.
Informal economy: Nearly 90 per cent of India’s workforce is employed in the informal sector (ILO), where workers face irregular income and lack of job security. The Covid pandemic highlighted the vulnerability of informal workers as millions lost their livelihoods. A UBI could offer a financial cushion, protecting these workers and enabling their participation in the formal economy.
Boosting consumption and growth: UBI can boost consumption, especially in rural and semi-urban areas. A UBI set at ₹7,620 per year could cost 4.9 per cent of GDP, achievable through subsidy rationalisation (Economic Survey 2016-17).
Empowering marginalised communities: Global Findex 2021 data shows that only 77 per cent of women have formal banking access, compared to 97 per cent of men. UBI could empower marginalised groups, especially women and lower-income communities and improve financial inclusion, giving women more autonomy in household decisions and access to education and healthcare.
While UBI holds promise, concerns about fiscal feasibility persist. However, sustainability measures can make UBI affordable and implementable.
UBI could be introduced in phases, starting with vulnerable groups like informal workers, women, and the rural poor. It can later be expanded to cover more people.
India’s subsidy regime accounts for 2.6 per cent of GDP, with inefficiencies and leakages. Redirecting these subsidies towards UBI could create fiscal space.
India’s complex welfare schemes come with high administrative costs. Consolidating these into a UBI framework could reduce costs and improve efficiency. The success of DBT, enabled by Aadhaar-linked accounts, demonstrates the viability of using digital infrastructure to streamline welfare distribution.
UBI could encourage participation in the formal sector, broadening the tax base and improving compliance. Increasing GST collections, which hit ₹1.65 lakh crore in July 2024, indicates potential for revenue growth through tax formalisation.
UBI can serve as a vital tool in the country’s development strategy, ensuring no citizen is left behind as India marches through its Amrit Kaal and the vision of a Viksit Bharat.
The writer is Deputy Director, Ministry of Finance. Views are personal