Universal Basic Income

Also called: UBI · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Beyond NCERT

Meaning

Universal Basic Income (UBI) is a cash payment that the government makes at regular intervals to every person. It is unconditional: no one has to prove low income or agree to work to get it. It is usually proposed as a replacement for many separate, targeted subsidies.

UBI matters because it challenges the usual way welfare is given. Today, schemes first pick out who is eligible and then deliver the benefit. UBI skips the selection step, which removes most targeting errors, but it costs much more.

Formulas:

• UBI cost = Amount per person per year × Number of people covered
• UBI cost as % of GDP = (UBI cost ÷ GDP) × 100

Explanation

The three core features

• Universal: it goes to everyone, not only to the poor.

• A "quasi-universal" version leaves out the richest group to save money.

• Basic: the amount is small. It covers only minimum needs.

• Unconditional: there is no income test and no work test.

• A targeted scheme asks, "Are you poor enough?" UBI does not ask.

• Periodic cash: it is paid regularly as money, not once and not as goods.

• This makes it a cash transfer (money paid directly), not an in-kind transfer (goods such as cheap rice through the PDS).

How it fixes targeting errors

Targeting means giving benefits only to people who meet eligibility rules. It makes two kinds of mistake.

• Inclusion error: ineligible people get the benefit, for example ghost or duplicate names.
• Exclusion error: eligible people are left out, for example because of Aadhaar authentication failures or outdated lists.
• Why UBI helps:
• Everyone is covered → no eligible person is left out → exclusion error almost disappears.
• "Ineligible" people no longer exist → the idea of inclusion error falls away.

• The cost is that money also goes to people who do not need it.

• Leakage argument:

• The Planning Commission's Programme Evaluation Organisation (PEO) studied the Targeted PDS and found that the government spent ₹3.65 to deliver ₹1 of food subsidy.
• UBI money goes straight to bank accounts → fewer middlemen → less leakage.

What makes the cost rise or fall

• Cost rises when: the amount per person is higher, or more people are covered.
• Cost falls when:
• the richest people are left out, which is why the Economic Survey 2016-17 covered 75% of the population;

• UBI replaces existing subsidies instead of being added on top of them.

• Worked example: take the Economic Survey 2016-17 amount of ₹7,620 a year per person.

• For 1 crore people: ₹7,620 × 1 crore = ₹7,620 crore a year.
• For 10 crore people: ₹7,620 × 10 crore = ₹76,200 crore a year.

• Covering 75% of India's population pushes the cost up to about 4.9% of GDP.

• Comparison: total Union subsidies were 1.2% of GDP in 2022-23 (BE, the Budget Estimate). A UBI at 4.9% of GDP would cost about four times the whole subsidy bill.

In India

• Economic Survey 2016-17: this is the main Indian source on UBI.
• It costed a UBI of about ₹7,620 a year per person.
• It covered 75% of the population, leaving out the richest 25%. This makes it "quasi-universal".

• The estimated cost was about 4.9% of GDP.

• The delivery system already exists:

• DBT (Direct Benefit Transfer) pays benefits straight into bank accounts. It was launched on 1 January 2013.
• Cumulative DBT transfers have reached about ₹53.26 lakh crore (as of September 2026) [2].

• The JAM trinity of Jan Dhan accounts, Aadhaar and mobile phones was proposed in the Economic Survey 2014-15. It provides the payment channel that any UBI would use.

• Quasi-UBI schemes in states: states run unconditional cash schemes for groups such as farmers and women. Each one covers a single group, not everyone.

• PM-KISAN: pays ₹6,000 a year to farmers. It is a cash transfer, but it is not UBI because only farmers get it.
• The fiscal warning:
• The RBI has warned that freebies strain state finances.
• The 16th Finance Commission has called for rationalising unconditional cash transfers.

Don't confuse with

• Targeted subsidy or DBT: DBT is only a delivery channel, and it still pays only people who are found eligible. UBI removes the eligibility test itself.
• Quasi-UBI or group schemes (e.g. PM-KISAN): these are unconditional within one group, such as farmers or women. UBI covers the whole population, or 75% of it in the Economic Survey 2016-17 version.
• In-kind transfer (PDS): the PDS gives goods, which protects people from inflation. UBI gives cash, which can lose value when prices rise.
• Freebies: freebies are often one-time handouts announced before elections. UBI is a regular, rule-based payment designed to replace several subsidies.

Prelims Hooks

• UBI in the Economic Survey 2016-17: about ₹7,620 a year per person, 75% of the population, about 4.9% of GDP. It appeared in the Economic Survey, not in the Budget.
• "Unconditional" means no income (means) test and no work condition.
• Quasi-universal: leaving out the richest 25% to cut cost. State schemes for farmers or women are "quasi-UBI", not true UBI.
• Trap: PM-KISAN (₹6,000 a year) is a targeted cash transfer to farmers. It is not a UBI.
• Targeting errors: universal schemes cut exclusion errors. Tighter targeting cuts inclusion errors but raises exclusion errors.
• Enablers: DBT was launched on 1 January 2013. The JAM trinity was proposed in the Economic Survey 2014-15.

Mains Points

• Case for UBI:
• It removes exclusion errors, such as Aadhaar authentication failures and outdated lists, that hurt the poorest.
• It cuts leakage. The PEO found ₹3.65 spent to deliver ₹1 of food subsidy.

• It builds on the DBT and JAM system. DBT and JAM have already saved an estimated ₹3.48 lakh crore, and subsidies fell from 16% to 9% of total government expenditure [1].

• Case against UBI:

• Fiscal cost: about 4.9% of GDP. It could only fit within FRBM targets if it replaced existing subsidies, and removing subsidies is politically hard.
• Inflation and access: cash loses value when prices rise, and it needs a bank close to the beneficiary. In-kind food is safer in remote areas.

• Fiscal discipline: the RBI and the 16th Finance Commission warn that unconditional transfers crowd out capital spending.

• A middle path: start with a quasi-universal or group-based UBI (for example, for women or farmers) that replaces overlapping schemes. Keep in-kind food as a choice, and add strong grievance redress and offline fallbacks.

Related concepts

• Subsidy
• Cash transfers
• Targeting errors
• JAM trinity
• Freebies
• Performance budget
• Outcome budget
• Zero-based budgeting
• Gender budgeting
• Green budgeting

Read more

• Spending better: subsidies, DBT and budgeting innovations