COVID-19 challenge: India must decide on a large stimulus package, says Professor Abhijit Banerjee

Getting some cash into the hands of the population is the best way to kickstart the economy, says the Nobel laureate in a conversation with former Congress president Rahul Gandhi

Nobel laureate Abhijit Banerjee. File photo

Nobel laureate Abhijit Banerjee in a conversation with former Congress president Rahul Gandhi, an edited video of which was released by the Congress on Tuesday, said India needs a large enough stimulus package to increase spending and revive demand to face the challenge posed by the COVID-19 pandemic.

This was Mr. Gandhi’s second online

conversation as part of a series of dialogues with experts to discuss the challenge posed by the pandemic.

From putting money in people’s hands to reviving demand to issuing temporary ration cards for providing foodgrains to cancelling debts, Professor Banerjee offered a range of suggestions for India to absorb the shock of a prolonged lockdown, especially for migrant workers and the micro small medium enterprises (MSME).

“A lot of us have been saying that we need a stimulus package. That’s what the U.S. 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. The U.S. has gone for 10% of GDP,” Dr. Banerjee said.

“Giving money in the hands of everybody, so that they can buy in stores or they buy consumer goods....I think spending is the easiest way to revive the economy. Because then the MSME people get money, they spend it and then it has the usual Keynesian chain reaction,” he said.

To another query from Mr. Gandhi on whether a scheme like NYAY or minimum income guarantee for the poorest families would help, he said, “Whether it is to the poorest people, that is more debatable...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.”

Talking about the two key challenges in a post COVID-19 world, he noted, “ 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 kickstart the economy”.

The Nobel laureate, however, was quick to discount the notion that “only strong leaders can take on the virus” and cited the U.S. and Brazil as two disastrous examples where the leaders are “messing up right and left”.

The economist also mentioned about their (along with Amartya Sen and Raghuram Rajan) suggestion to give temporary ration cards and make the public distribution system universal and also find a way to put cash in the hands of people who don’t have Jan Dhan accounts .

On the issue of how quickly the economy could be opened up, Professor Banerjee said, “You don’t want to take down the lockdown when a lot of people are getting sick.”

Later, Mr. Gandhi — using the hash tag #ReopeningIndiasEconomy — tweeted, “While tackling the virus, think in terms of zones. While reopening the economy, think in terms of supply chains.”