On Tuesday, Economics Nobel laureate Abhijit Banerjee said that India needs a stimulus package much bigger than the $23 billion which was declared in March and in order to create demand and avert chains of bankruptcies, the cash in hand should be given to revive its coronavirus-hit economy.
During a conversation, Banerjee said to former Congress president Rahul Gandhi, “India needs a stimulus package. We have not dedicated an outsized enough financial package yet”.
“Spending is the easiest way to revive the economy. It will have a stimulus effect”. Banerjee added.
He appealed the Indian government to take a cue from the US.
“India hasn’t discussed a large enough package. We are still talking about 1% of GDP. The US is aggressively doing that. This is a Republican administration journey by a bunch of financiers. If they are willing to do it, we should be willing to do it.”
“That’s the rationale, tons folks are saying that we’d like a stimulus package. That’s what the U.S. is doing, Japan is doing, Europe is doing. We really haven’t selected an outsized enough stimulus package. We are still talking about 1% of GDP. United States has gone for 10% of GDP,” he said.
Further, he said, “It is more reviving demand. Giving money within the hands of everybody, in order that they will stock stores or they buy commodity ….I think spending is the easiest method to revive the economy. Because then the MSME people get money, they spend it then it’s the standard Keynesian chain reaction.
Answering to another question from former Congress leader on whether a scheme like Nyay or minimum income guarantee for the poorest families would aid, he said, “Whether it is to the poorest people, that’s more debatable…. I might 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 might have a stimulus effect”.
Banerjee stated that pre-empting businesses from bankruptcy and reviving demand would be the two key challenges posing in a post-COVID-19 world.
He stated, “There are two concerns — the way to avoid a sequence of bankruptcies. Maybe writing off a lot of debt is the way to go, as you had mentioned. The other is demand shortfall, and getting some cash into the hands of the population is that the best thanks to kicking starter the economy.”
He added, “Even the Republican administration in the U.S., run by a bunch of financiers, are pumping money into people’ hands.”
Banerjee also suggested to provide temporary ration cards for people and also finding a way to give cash in the hands of people who do not have Jan Dhan accounts.
“In fact, put other ration cards abeyant, just put temporary ration cards. Anybody who wants one, get a short-lived card. Lasts for 3 months for now and perhaps renewed for an additional 3 months if necessary, and honour that. Give everyone a card, anyone who walks in gives them one,” he said.
“People who have the Jan Dhan accounts, they will get the cash. But many of us don’t….And probably the proper answer is that we should always provide a bunch of cash available to the State governments to undertake out their own schemes, to be creative in reaching people that are excluded using NGOS…,” he said.
In the previous week, Gandhi discussed with former Reserve Bank of India governor Raghuram Rajan about the novel coronavirus and its economic implications.
During the interaction, Rajan suggested that India should be “cleverer” in extending the lockdown and should open up its economy in a “measured way” soon to save jobs.
He had also stated that to support the poor hit hard by the crisis, Rs 65,000 crore should be spent.