Stressing that spending is the easiest way to revive the economy, Nobel Laureate Abhijit Banerjee on Tuesday said the government should put money in the hands of the bottom 60 per centof the population post-lockdown to spur demand and trigger growth besides announcing a big stimulus package. He advocated waiving off loan repayments for small businesses in the June quarter.
In a conversation with former Congress president Rahul Gandhi, Banerjee said the three-month moratorium on debt repayments announced by the RBI for the MSME sector was a wise decision and argued more should be done. “We could even say that debt payments for this quarter will be cancelled and will be taken care of by the government,” he said.
But beyond that, he said, “It is not clear targeting the MSME sector is the right channel.” It is more about reviving demand, he said.
Banerjee advocated cash transfers to trigger spending, but said targeting is going to be extremely costly and argued the government should give cash to the “bottom 60 per centof the population.” He, however, felt the transfer should be timed in such a way that “you get the money when you can go out and buy (and) not now.”
“If they had money or even if you promise them money, it doesn’t have to be that the money is right now. If you are in the red zone, you can say look whenever lockdown is lifted you will have money in your account, Rs. 10,000 in your account and you can spend it. 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.
He added: “You get a promise that you’ll get the money so that you stop panicking and stop completely starving yourself, so that you have a little bit of savings left. If people were reassured that in 2 months or whenever the lockdown is lifted, they will have some money in their hands, they will be much less worried about (it), they will be more willing to spend already. Some of them have some savings.” “I feel you must not necessarily rush into it, because there may be places where there is no production right now, no supply right now. Putting money will just burn the money, there will be inflation. You want to wait for that.”
When Gandhi pointed out businesses which are in distress will find it difficult to maintain jobs, Banerjee said “that’s the reason, a lot of us have been saying that we need a stimulus package. That’s what the US 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 per centof GDP. United States has gone for 10 per cent of GDP. There is a sense in which I think we have to.”
Banerjee suggested distribution of temporary ration cards to anyone who requires it and argued government go downs have enough stocks of wheat and rice for distribution. Pointing out there may be many people who may not have to access to schemes like Jan Dhan accounts , he said “we should give a bunch of money available to the state governments to try out their own schemes, to be creative in reaching people who are excluded using NGOS”
“I think we have to be willing to take some amount of mistargetting, malfeasance. Some money will be stolen. But if we sit on our hands, and say that we don’t want to do anything that could go possibly wrong, then we’ll make sure it goes wrong,” he said.
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