Nobel laureate Abhijit Banerjee has recommended that India offer cash to the poorest 60% of its population and waive off loan repayments for small businesses in the June quarter, as he pitches for a large enough fiscal package to stimulate demand in the economy ravaged by the novel coronavirus crisis.
In a conversation with senior Congress leader Rahul Gandhi through video-conferencing on Tuesday, Banerjee said offering cash to the poor will spur spending and, thus, generate demand. “We really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. The US has gone for 10% of GDP,” he said.
The government had announced a relief package worth Rs 1.7 lakh crore (0.8% of GDP) for the poor and the vulnerable on March 26, with the extra budgetary component of it being just about Rs 75,000 crore. It offered Rs 500 per month to 20.4 crore women through their Jan Dhan accounts for three months, among others. However, a package to prop up the economy is yet to be extended.
“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,” he said.
To a question by Gandhi if some form of the NYAY scheme or direct cash transfer to people, proposed by the Congress party before the 2019 general election, was the need of the hour, the noted economist replied in the affirmative, asserting that the relief should not be limited just to the poorest of the population.
He, however, stated that the cash handouts shouldn’t be extended before the lock-down curbs are lifted and people are able to spend; else, it won’t have the desired impact.
“I think spending is the easiest way to revive the economy. Because then MSMEs get money, they spend it and then it has the usual Keynesian chain reaction,” Banerjee said. “We cannot shut the entire retail sector because they are situated in the coronavirus red zone,” he said.
The government should also offer temporary ration cards to people so that they can take advantage of the subsidised grain supplies through the public distribution system. Several analysts have pointed out that the migrant workers, the worst victims of the pandemic, are deprived of the PDS supplies, as they don’t have ration cards in places of their work.
Banerjee also flagged the risks of rising bankruptcies due to the crisis. “Maybe writing off a lot of debt is the way to go,” he said. Demand shortfall is the other concern. “Getting some cash into the hands of the population is the best way to kick-start the economy,” he said.
Gandhi’s interaction on Tuesday was the second in a series of conversations that the Congress leader is expected to hold with experts on the impact of the coronavirus pandemic on livelihoods and economy. Last week, he held a similar interaction with former RBI governor Raghuram Rajan.