NEW DELHI, May 5: India should come out with a large enough stimulus package to revive demand, Nobel laureate Abhijit Banerjee said on Tuesday, while favouring putting cash in the hands of the bottom 60 per cent population to help boost the economy post lockdown.
Banerjee, while talking to Congress leader Rahul Gandhi through video-conferencing, suggested several measures like increasing people’s spending by giving money to help revive demand, give temporary ration cards for providing grains to the poor and for cancelling the debt for a quarter.
He was deliberating on the economic impact of the COVID-19 pandemic with Gandhi as part of a series of dialogues broadcast on Congress’ social media handles.
The Nobel laureate debunked the theory that only a strongman could take the right decision during such a pandemic, saying it has proved disastrous in the US and Brazil.
“The US and Brazil are two countries that are messing up right and left. These are two ‘strongmen’ behaving like… Pretending like they understand anything… But even what they say every day is kind of laughable. If anyone wanted to believe in the strongman theory, this is the time to disabuse themselves,” he said.
Noting that the real concerns are if the economy will revive, he said, “I think we should try to be optimistic about the survival of the overall economic well-being of the country. Just take the right actions.”
Gandhi suggested that states should be given options and be allowed to decide themselves on the lockdown, to which Banerjee agreed.
Banerjee said it was important for India to announce a large enough stimulus package to deal with the crisis on the lines of what the US, Japan and the Europe are doing.
“A lot of us have been saying that we need a stimulus package. That’s what the US is doing, Japan is doing, Europe is doing. We really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. United States has gone for 10% of GDP,” the noted economist said.
He said the country put a moratorium on debt payments, but “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.”
Instead of just rescheduling it, we could just permanently cancel it, he added.
On the demand for giving a financial package for the MSME sector, Banerjee said, “It is not clear that targeting the MSME sector is the right channel. It is more reviving demand. Giving money in the hands of everybody, so that they can buy in stores or they buy consumer goods.”
He said spending is the easiest way to revive the economy and for that the government needs to put money into the hands of people.
Asked about the short term concerns for the economy, Banerjee said the question is of demand shortfall and of bankruptcies.
“There are two concerns – how to avoid a chain of bankruptcies. Maybe writing off a lot of debt is the way to go…The other is demand shortfall, and getting some cash into the hands of the population is the best way to kick start the economy,” he said, noting that the US is aggressively doing so by pumping in money into people’s hands for economic survival and India should take a cue from it.
To Gandhi’s question as to whether some form of the Congress-proposed NYAY scheme or direct cash transfer to people was the need of the hour, Benerjee answered in the affirmative, saying it should not be limited just to the poorest.
“I would say bottom 60% of the population, we give them some money, nothing bad will happen in my view. If we gave them money, well some of them might not need it. Fine they’ll spend it. If they spend it, it would have a stimulus effect,” he said.
Banerjee also suggested that the Government should hand out temporary ration cards to people to deal with the problem of food distribution.
He noted that the Aadhaar-based claims for PDS would have saved a lot of misery for the poor in the current situation as a bunch of them are still not in the system. (PTI)
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