Spending is the easiest way to revive the economy: Abhijit Banerjee

Lockdown homeschool for Indian adults: A simple economics class from a Nobel laureate, and a lesson on conducting TV interviews from a politician.

EconomyImage Courtesy:huffingtonpost.in

“It’s surreal, it’s frightening, not that anybody knows what is going to happen next,” Nobel laureate, economist Dr Abhijit Banerjee said what everyone across the world is thinking. These words set the mood for a calm conversation, steered by Congress leader Rahul Gandhi, who asked questions that can put some of the most well known TV News anchors to shame. The politician, often at the butt of infantile jokes from right Wing parties held a second live interview with a globally acclaimed economist (the first being former RBI governor Raghuram rajan). The two discussed the devastation caused by the sudden Covid-19 lockdown and talked about possible solutions to what is obviously a long term crisis. According to Banerjee the lockdown needs to be lifted, but only after all the factors have been studied. Both recognised that the economic crisis was massive and recovery was a long and ongoing process. 

What made viewers sit up and notice was that Banerjee has had to spell out the obvious: Cash in hand, is at the core of restarting the economy. Money needs to be given out to people, and India needs a bigger stimulus package. Banerjee said the cash needs to be given to more people, not just those who are identified as the ‘poorest of the poor’.

Similarly, food security should be extended to all those who need it. Banerjee suggested that the Public Distribution System issue ‘temporary’ ration cards to anyone who wants them, and food grains be given out. The following are the key points culled from a transcript of the interview reported by the National Herald. The entire interview is also available on Youtube.

Give money, so people can buy consumer goods 

I think spending is the easiest way to revive the economy. The bottom 60% 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. I would go beyond the poorest people.

A stimulus package 

We really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. The United States has gone for 10% of GDP. We have done one thing that I think is wise, which is to kind of put a moratorium on debt payments I would say. We could do more than that. We could even say that the debt payments for this quarter will be canceled, and will be taken care of by the government. It’s not just a matter of rescheduling it, just permanently cancel it. 

Cash for those without Jan Dhan accounts

Especially, migrants may not have access to that, etc. We need to also think about what happens to a substantial part of the population that does not have access to these things. And probably the right answer is that 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 mistargeting, 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.

Start up the demand as soon as possible

Even before this happened, I have been saying that we have a demand problem. Now we are going to have a bigger demand problem. Because it is the usual problem. I have no money, I am not buying anything because my shop is closed. But then your shop is closed because I am not buying anything from you. Give people spending power where we have shut down the entire retail sector.

Plan so that you get the money when you can go out and buy. Or 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 it already.

But there is a caveat

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. With that caveat, yes, soon.

Give everyone a ration card

Temporary ration cards to anybody who wants one. In fact, put other ration cards in abeyance, just put temporary ration cards. Anybody who wants one, gets a temporary ration card. Use that as a basis for making transfers. I think we have enough stocks. I think we can keep going for a while. The Rabi crop has been good this time, so we are going to have tonnes of Wheat and Rice. I don’t know if we have enough Dal or not. But I think the government promised Dal as well. 

Migrant movement cannot be handled by a State Government

Clearly the migrant movement question cannot be handled by a State Government. It is a bit odd that it is being handled so much bilaterally. In a sense I feel like that is a problem. This is a place where you don’t want to decentralise because you want to actually aggregate the information. If this is a population of people who were very infected, you don’t want them to be moving through the whole country. I feel this is a place where we should have tested people where they are allowed to board a train or something. That is a central question and something that only a federal government can do. Tell the Government of UP that you cannot just bring your migrants home. Conversely, the question of how to serve migrants in Bombay city is the Maharashtra Government’s problem or the Bombay City Municipality’s problem. You can’t have the federal government resolving that.

I think what I would have done is announced a bunch of money available for proposing good schemes for reaching the poorest people and let’s test and innovate. And I think there are good NGOs in most States who can be brought into that process. And as you said District Magistrates often have great ideas. And we might just benefit from all of that.

Aadhaar for PDS

One of the ideas that were mooted in the last years of the UPA but also embraced by the current government was the idea that the Aadhaar would be made national and therefore would be used for PDS and other things. You would be eligible wherever you are. That would have been wonderful to have right now. 

Looking back right now, that would have sort of saved a lot of misery. Because then a lot of people would have then gone to the local ration shop and then said that this is my Aadhaar. I am eligible for PDS, I’m collecting PDS in Mumbai, even though my family resides in Malda or Darbhanga or whatever. That’s my claim. And the fact that didn’t happen means that there are a bunch of people for whom there isn’t really a system. They aren’t eligible for MGNREGA, because there is no MGNREGA in Bombay. But they are not eligible for PDS because they are not residents.

The conceptualisation of the welfare structure was based on the idea that anybody who is really not in where they are supposed to be is actually working and therefore is earning an income and you don’t have to worry about them. And that’s what has collapsed.

Question of poverty

Will the economy revive and in particular, how does one think of the possible time paths of this disease through that process. I think we should try to be optimistic about the survival of the overall economic well-being of the country. It just takes the right actions.

Unlocking the lockdown

You don’t 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.

The interview, conducted by Rahul Gandhi, via a video call on May 5 and telecast live, may or may not have gone viral, but it has illustrated an interesting political point. Rahul Gandhi, and the Congress party, sit in the Opposition benches and have no real decision making power in the government, however, this extended Covid-19 lockdown has given them a shot in the arm as far as revining their public image is concerned. 

Live interviews with leading economists, letters to the Prime Minister, highlighting economic concerns, offering aid to stranded migrant workers, and daily video press meets are all an indication that there will be new political conversations as the nation eventualy emerges from the lockdown 2020. The general elections may still be four years away, but the Congress sure seems to be seen  in active pre-campaign mode. The nation meanwhile, waits to hear from the Union Finance minister this month. The Prime Minister of course will share his Man Ki Baat as scheduled.



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