New Delhi: The Narendra Modi government should look at providing cash transfer to the bottom 60 per cent of India’s population to help revive the economy, Nobel laureate Abhijit Banerjee has said.
In a conversation with former Congress chief Rahul Gandhi, Banerjee pointed out that increasing the spending power of people may be a better option than a package specifically targeted at micro, small and medium enterprises (MSMEs).
“…it is not clear that targeting the MSME sector is the right channel. It is more about reviving demand. Giving money in the hands of everybody, so that they can buy in stores or they buy consumer goods,” he said during the video chat streamed by the party Tuesday.
“If you are in the red zone, you can say look whenever the lockdown is lifted, you will have money in your account, Rs 10,000 in your account and you can spend it. I think spending is the easiest way to revive the economy,” he said.
Banerjee, who is the Ford Foundation International Professor of Economics at Massachusetts Institute of Technology in the US, pointed out that targeting the poorest will be an expensive exercise. Instead, he favoured transferring funds to the bottom 60 per cent of the population, saying spending by them will create a stimulus effect.
“I think targeting is extremely costly. You try to target in this mess, who has become poor after their shop was shut for 6 weeks. I don’t know how you’d figure this out,” he said.
Banerjee added that India had a demand problem even before the Covid-19 pandemic and it is only going to worsen now.
This is the second conversation Gandhi has held with economists on the pandemic and its economic impact. Last week, the former Congress chief spoke with former Reserve Bank of India (RBI) governor Raghuram Rajan on the steps needed to revive the economy.
The Indian economy has come to a virtual standstill after the Modi government announced a lockdown beginning 25 March to contain the spread of Covid-19, forcing many industries to shut shop and displacing migrant labour. After two extensions, the lockdown is slated to end on 17 May.
To protect firms against bankruptcies, Banerjee suggested, the government should completely cancel debt payments by borrowers for the entire quarter rather than just rescheduling it.
Also read: India sees widest budget gap in 6 years as it breaches target on poor tax collection
Current welfare schemes don’t help migrant workers
Abhijit Banerjee — who was awarded the Nobel Prize for Economics in 2019 along with Esther Duflo of the Massachusetts Institute of Technology (MIT), who is also his wife, and Michael Kremer of Harvard University — advocated providing temporary ration cards to everyone to ensure supply of foodgrains to the needy.
The economist pointed out that in the short run, the welfare schemes and policies put in place by the United Progressive Alliance (UPA) government, and then embraced by the Modi government, are inadequate in the current situation as there are people who are not covered by them.
He alluded to how migrant workers cannot take advantage of the Mahatma Gandhi National Rural Employment Guarantee Scheme or the access to foodgrains under the National Food Security Act.
“…what do we do with the people who are not covered by that? That is a lot of people. The migrants in particular,” he said, adding that making Aadhaar the basis of the public distribution system and other things would have saved a lot of misery.
“When you are in dire straits, being brave is the only option,” said Banerjee.
India needs a large stimulus package
The economist also pointed out that India needs a large stimulus package — much larger than the package equivalent to 1 per cent of GDP announced so far.
“We really haven’t decided on a large enough stimulus package. We are still talking about 1 per cent of GDP. United States has gone for 10 per cent of GDP,” he pointed out.
Need to cancel debts for one quarter
Abhijit Banerjee also flagged the need to completely cancel debt payments by borrowers for the entire quarter rather than just rescheduling it in a bid to protect firms against bankruptcies. In March, the RBI had announced a three-month loan moratorium on all term loans providing a reprieve to the borrowers.
“We have done one thing that I think is wise, which is to kind of put a moratorium on debt payments. We could do more than that. We could even say that the debt payments for this quarter will be cancelled and will be taken care of by the government. It’s not just a matter of rescheduling it, just permanently cancel it,” he said.
Also read: Modi govt’s relaxed lockdown not enough to revive India economy, says Axis Bank study
That will cause inflation. And I’m sure no one wants to take a bag full of cash to buy a pack of bread. Yes, that’s what it’ll do to the economy
Next in line may be Dr. Amarthya Sen. Most of these Darbari poverty Economists are foreign trained or educated. Sitting in some foreign country having no knowledge of ground realities, they draw their conclusions based on information of some entity outsourced to collect data most of the times not relevant to Indian conditions. So please carry on till RG is fully trained.
So that they can buy liquor from that money.
Fantastic…Blind leading a Blind!!! 1st Abhijit should teach Rahul diff btwn ‘Waive off’ & ‘Write off’, his understanding is scratching d bottom. India has a strong Economic mechanism, v r doing good…both of these wise bods shld mind their own business.
First thing is how you get out of it? On the first day of partial relaxation we saw the overcrowding n mess at liqour shops.Should ppl feel normal everywhere then ppl will be orderly and will not rush out to create such panic.Certain economic activity has been opened but how do the workers reach there in the absence of public transport ? So it is neither here nor there.Only by complete lifting of LDN n creating normal conditions can the new normal of social distancing, while travelling in a bus,metro,train etc. ,wearing mask,hygiene of hand washbetc. ppl can learn to adopt.That is the only way to open the economy that is complete opening and learning to adopt new normal.On the other hand more important immidiate task in hand is that of help the marginal section survive first about which Mr Banerjee is talking to be able to be part of revival.It involves massive doles of a mai-baap sarkar which states can’ t without transfer of massive cash from center which Modi would have none of it as seen in case of migrant labor ticket payment issue, because he wants complete control over purse strings centrally but will not yield result. So the first requirement is someone to replace Modi at the center who is prepared to work on these lines with states giving them the autonomy to decide on day to day decisions but also having enough money.
Sorry Dr Banerjee,
Pardon my ignorance- but giving people money and asking them to spend- will that not lead to hyperinflation?
Is that not what happened in Germany about 100 years ago (just less than 100)?
When we give people money to spend it they will buy more no. of goods and services that will help the econy because Inflation is caused when the purchasing power of people is decreased when we give money,employment to people they will earn pay taxes have more purchasing power they can afford things and Mr. Banerjee here is taking in terms of how to revive the economy during lockdown and when there is no great and serious issue then what we need to do is sustainable development and increase employment so that people can affotd these things and when people will be able afford these things the purchasing power will increase and we will have a good rate of inflation
Print and spend … One does not need an Economics Nobel to figure where that will lead.
For Government RG is the enemy greater than Corona. For the RG it’s vis-versa the same. So when RG suggest something means to show him underrated , they won’t follow him. But in this battle the country suffers, the economy suffers, the average man suffers, the industry, the industrialists, business man with suffers.
If really Modi has to pickup the economy, the GDP or progress the nation instead of Jaundiced eyes, his government & he himself should due attention to the great RRR/ AB/ AS & take these persons on advisory board or Niti Agyog. Where is Mr. Rangrarajan,Mr.M .Ahuluwalia, Mr. Manmohan? Why not open heartedly respond as Mr. RRR has already suggested that accept the bad conditions of economy first then you ll find the way
The only thing that Rahul Gandhi has to offer India is that he can make us laugh!
The guy is a funny clown.