[Editorial] Universal Basic Insurance

The precariousness of human society was exposed by the pandemic and the importance of social security came into focus. The concept of Universal Basic Income featured in the discussions on how best to ensure social security for the masses. However, another concept- Universal Basic Insurance– needs to be examined as it may prove to be more suitable in the Indian context.

Why are social security nets needed?

  • Income shocks– such as the ones triggered by the pandemic- causes a drastic decline in the conditions of those living on the line of basic living wages (line 1) towards the critical survival line (line 2).
  • If a household falls even further down- past the line 2- it would end up facing a poverty trap.
  • A social security system functions like a safety net to prevent this fall past line 2.

What are the types of social security nets?

  • Social security mainly covers food, health and income security.
  • Social security nets can be of 3 types:
    • Passive safety nets that catch households falling from line 1 and prevents a decline past line 2. These include the social assistance programs for the most income deprived sections.
    • Active safety nets that function like a trampoline i.e. the households that fall on it are able to bounce back to line 1. These include schemes with higher outlay.
    • Proactive safety nets function like a launchpad i.e. households that fall on it bounces back to line 1 and moves up beyond it too. These are considered as the most desirable option but poses challenges in form of high resource and institutional capacity requirements.
  • To ensure social security, people at the lower end of the income line require social assistance schemes whereas those on the upper end need voluntary insurance schemes.

What has the government done to provide such nets?

  • India has the widest spectrum of such schemes, catering to the largest number of people– compared to other countries.
  • The enormous scale of India’s food program is noteworthy.
    • For instance, the food security program provides highly subsidized food grains to more than 800 million beneficiaries, under the National Food Security Act.  It is the largest food security program in the world.
    • The Mid-Day Meal Scheme provides free lunches to nearly 120 million children across the country.
    • The free meal schemes run by the state governments benefit some 50 million people.
  • On the health front:
    • The Ayushman Bharat Scheme covers more than 490 million people of the unorganized sector.
    • The Employees State Insurance Corporation caters to 130 million people and the Central Government Health Scheme caters to 4 million people in the organized sector.
    • The state governments’ health insurance schemes covers 200 million people.
    • In addition to this, 110 million people have private health insurance cover.
    • However, despite these large-scale programs, some 400 million people are not covered by any type of health insurance.
  • When it comes to income security:
    • There are 3 types of provident fund schemes for the organized sector:
      • General Provident Fund– covering 20 million government (central and state) employees
      • Employees’ Provident Fund– covering 65 million organized sector workers
      • Public Provident Fund– covering all Indian citizens but mainly has contributions from the organized sector
    • The New Pension Scheme has 53 million subscribers– 2.2 million in the central government and 5.6 million in the state government, while the remaining are from the private sector.
    • The unorganized sector has
      • PM KMY (Pradhan Mantri Kisan Maan-Dhan Yojana) and the PM KISAN– covering 120 million farmers.
      • The APY/ Atal Pension Yojana covers 40 million beneficiaries.
      • The PM Shram Yogi Maandhan Yojana has 5 million beneficiaries.
      • The National Pension Scheme for Traders and Self-Employed Persons covers 50,000 beneficiaries.
      • The MGNREGA is the largest income security program for the unorganized sector- with 60 million beneficiaries.
    • Hence, 100 million workers, out of 500 million, are without income security coverage.

Why choose universal basic insurance over universal basic income?

  • While the critics of universal basic insurance concept cite the informal nature of the economy as a major impediment, it is a better proposition because of 2 reasons:
    • Low insurance penetration i.e. premium as a percentage of GDP- around 4% in India whereas in other countries- Taiwan (17%), Japan (9%) and China (6%)
    • Despite informality of the economy, data on the informal sector is now available- data on businesses from GSTIN (GST Identification Number) and on unorganized sector workers from e-Shram database

What is the way ahead?

  • Universal basic income schemes come with major fiscal implications i.e. 4.5% of the GDP. There is also a high risk of implementation failure because the enormous scale of beneficiary identification requirements. Hence, universal basic insurance is a better option.
  • Notably, the GST portal has now recorded 13.5 million registrations and the e-Shram portal has recorded more than 280 million registrations.
  • Karnataka has developed the ‘Kutumba’, a social registry portal based on such data. This can be used as a blueprint.
  • Until the economy grows to see adequate voluntary insurance cover, social security can be provided through a universal basic insurance scheme.


Social security schemes are crucial if the developmental gains are to be kept from complete regression after major shocks like the pandemic. Despite the informal nature of the Indian economy, the recent initiatives in capturing informal sector data make the option of universal basic insurance a more viable option than universal basic income.

Practice Question for Mains:

Examine whether Universal Basic Insurance is a better proposition for the Indian situation than Universal Basic Income. (250 words)

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