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 from the US, suggested several measures like increasing people's spending by giving money to help revive demand, temporary ration cards for providing grains to the poor and cancelling the debt for this 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 a crisis, 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 concern is if the economy will revive, Banerjee 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.
Asked whether India should soon come out of the lockdown, he said it depends on the disease as you do not want to take down the lockdown when a lot of people are getting sick.
"We have to kind of be aware of the time path of the disease, he said.
Gandhi suggested that states should be given options and allowed to decide themselves on the lockdown, to which Banerjee agreed.
The Economics Nobel Prize winner said it was important for India to announce a large enough stimulus package to deal with the crisis on the lines of what the United States, Japan and the Europe are doing.
"A lot of us have been saying that we need a stimulus package. That is what the US is doing, Japan is doing, Europe is doing. We really have not decided on a large enough stimulus package. We are still talking about 1 per cent of GDP. The United States has gone for 10 per cent of GDP," he said.
Banerjee 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. Give money in the hands of everybody, so that they can buy in stores or they buy consumer goods."
Asked about the short-term concerns for the economy, the noted economist said the question is of demand shortfall and 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.
Banerjee also suggested the Indonesia-model wherein cash transfers are made entirely through a community decision making process, with people making judgments about what is appropriate in a much more locally nuanced way.
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, Banerjee answered in the affirmative, saying it should not be limited just to the poorest.
"I would say bottom 60 per cent of the population, we give them some money, nothing bad will happen in my view... If they spend it, it would have a stimulus effect," he said.
Banerjee also suggested that the government hand out temporary ration cards to people to deal with the problem of food distribution for three months, and if need be can be renewed for another three months.
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.
He also called for handing out wheat, rice and dal to the poor as Rabi crop has been good and the country has enough stocks.
He noted that the question of migrant movement cannot be handled by state government, and there cannot be decentralisation of power and called for everyone's testing before boarding a train.
Congress spokesperson Sushmita Dev later urged Prime Minister Narendra Modi to listen to the voice of people which Rahul Gandhi has been stating and Abhijit Banerjee's suggestion of giving more food and money to the poor and announcing a bigger financial package.
She also accused the government of lacking in planning that has given rise to many problems during the lockdown.
We request the prime minister to listen to the voice of reason, to listen to the voice of the people, who are experts, who are eminent economists and there is absolutely no harm in imbibing this," she said, noting that the COVID-19 figures tell us that the virus is not going away anywhere soon.
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