The Nobel Laureate, Prof. Abhijit Banerjee, said on Tuesday India needed a large stimulus package to revive the economy amid an evolving Covid-19 pandemic and enhancing spending was the best way to do that.
Over a 25-minute conversation with the Congress leader, Mr. Rahul Gandhi, Prof. Banerjee also said the Government should give money to the bottom 60 per cent of the population to spur demand and also issue temporary ration cards to everyone who needs one.
The top economist didn’t favour a hasty retreat out of the lockdown and advised caution saying the decision to lift the lockdown should depend on the time path of the disease.
'We should try to be optimistic about the survival of the overall well-being of the country. We need a stimulus package. That’s what the US, Japan are doing. We haven’t yet decided about a large stimulus package. We are still talking about one per cent of the GDP. The US has gone for 10 per cent of the GDP,' he said.
Noting that Aadhar-based universal PDS entitlement would have been the best at this time and would have saved a lot of misery, Prof. Banerjee said India should not worry about targeting and should put money in the hands of people or at least a promise that they will have the money to spend whenever the lockdown is lifted.
On Mr. Gandhi’s suggestion of doing a large revival package for MSMEs as a solution to sour economic activity, the economist had his doubts.
'Debt payments of MSME should be permanently cancelled for this quarter but beyond that It’s not clear that targeting the MSME channel is the right channel. It is more reviving demand, putting money in the hands of people so that they go and buy stuff. Spending is the best way to revive the economy,' he noted.
When Mr. Gandhi spoke of a minimum income guarantee plan to the poorest as another solution right now, Prof. Banerjee advocated a broader base of people rather than just the poorest.
'Targeting is extremely costly. Give the bottom 60 per cent of the population. Nothing bad will happen. It would work as a stimulus package,' he said.
Prof. Banerjee said demand must be spurred fast and the government should not worry about checking everyone‘s locus standi.
The economist also added India shouldn’t induce a mismatch of demand and supply by giving people spending power where we have shut down the entire retail sector in the red zone.
'You should get the money when you can go and buy. You should get a promise that you will get the money when you can go and spend. If people were reassured that they would have some money on hands once the lockdown is lifted they would be more willing to spend. You shouldn’t rush into it,' he said.
On the lockdown, the economist said lifting it depends very much on the disease. You don’t want to lift when a lot of people are getting sick. We have to be aware of the time path of disease before taking that decision,' adding that there should have been more centralisation in handling the migrant issue.
Asked to comment by Mr. Gandhi on the overall impression that it needs a strong leader to take on the virus, Prof. Banerjee said, 'That has been disastrous. The US and Brazil are messing up right and left. These are led by strong men pretending they understand everything. Even what they say everything is laughable. If anyone wanted to believe in the strong man theory this is the time to disabuse themselves of that belief.'