India needs big stimulus package, says Nobel laureate Abhijit Banerjee

New Delhi: India needs a big stimulus package, bigger than the one it announced in March to revive the economy which is hurting from the coronavirus disease and the lockdown enforced to combat it , Nobel laureate Abhijit Banerjee said on Tuesday , adding that the emphasis should be on generating demand.

One way to do this would be to just put money in the hands of consumers, he added.

Banerjee, 59, who shared the 2019 Nobel prize for economics with his wife Esther Duflo and Michael Kremer for an “experimental approach to alleviating global poverty,” cited the examples of countries that have unveiled sizeable stimulus packages to boost their economies.

“That’s the reason a lot of us have been saying that we need a stimulus package,” Banerjee said in a video conversation with Congress leader Rahul Gandhi. “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% of GDP [gross domestic product]. The United States has gone for 10% of GDP.”

On March 26, the National Democratic Alliance government announced a Rs 1.7 lakh crore relief package under the Prime Minister Garib Kalyan Yojana (PMGKY), which is around 0.8% of India’s GDP, to ease economic distress and make sure food and cash reach the poor.

Industrial houses are waiting for a bigger package of about Rs.16 lakh crore to stimulate demand and resuscitate economic growth, which the International Monetary Fund (IMF) has predicted will decelerate to 1.9% this fiscal year, the slowest pace in three decades.

In his conversation with Gandhi, Banerjee said that the government should go beyond a moratorium on debt payments which the Reserve Bank of India announced last month; it could consider cancelling payments in this quarter and take care of them itself for small enterprises.

But an economic revival also needs more than that, he said, adding that money should be put in the hands of the people to generate demand, say Rs 10,000 each. “It is not clear that targeting the MSME sector is the right channel. It is more [about] reviving demand,” he said, adding that delivering money straight to consumers to spend would achieve the objective.

The conversation is the second in a series that Gandhi is holding with global thought leaders and experts on the impact of Covid-19 on the economy and possible solutions. The first was with former Reserve Bank of India (RBI) governor Raghuram Rajan on Thursday.

Banerjee told Gandhi that it is important to revive demand without obsessing about targeting the right beneficiaries. “Nothing bad will happen if we give money to the bottom 60%. But to give direct cash transfer to only poorer people is debatable,” he said.

Rajan told Gandhi on April 30 that the government should transfer cash directly to the poor and supply food through the public distribution system (PDS) to as many people as possible to help them tide over the impact of the coronavirus disease. He had estimated that the effort would cost the exchequer Rs 65,000 crore..

Banerjee said the government must ensure social security for all in need, either by allowing portability of ration cards, or simply the use of the Aadhaar number irrespective of one’s location, or even temporary ration cards, an idea he suggested in an Op-Ed he wrote with Raghuram Rajan and Amartya Sen. “Anybody who wants one, get a temporary ration card -- lasts for three months for now and maybe renewed for another three months, if necessary..,” he said.

“I think we have enough stock (of food). I think we can keep going for a while. The rabi {winter-sown} crop has been good this time, so we are going to have tonnes of wheat and rice. So at least wheat and rice, we can keep giving out. I don’t know if we have enough dal [pulses] or not. But I think the government promised dal as well. So hopefully we have enough dal and cooking oil etc,” he said.

On lifting the lockdown, extended until May 17, Banerjee called for caution. “You can’t take out the lockdown when a lot of people are getting sick. We need to be aware of the disease’s path before taking a decision on lifting the lockdown,” he added.

Banerjee also suggested that the Centre give state governments money to chalk out their own initiatives to reach a wider section of the people and not think about some of the money getting wasted.

“Be brave and take risks. When you are in dire straits, being brave is the only option,” he said.

Indonesia, Banerjee pointed out is giving out “cash transfers through a community decision making process. The community will decid who are the people who are needy.” This doesn’t do any worse than “centralised tragetting,” Banerjee added.

Gandhi also pointed out that there is a feeling that “strong leaders can take on the virus...; that it requires one man to charge in...” .

Banerjee said that this has been “disastrous” and pointed to Brazil and the US. “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.

A spokesperson of the finance ministry declined to comment on the issue.

Meanwhile, G Kishan Reddy, minister of state for home, said in a tweet, “Nobel laureate Abhijit Banerjee enlightens the Congress & it’s pseudo intellectual leaders, including Mr @RahulGandhi, by supporting #PMGKY, PMJDY [Pradhan Mantri Jan-Dhan Yojana] among others & the efforts of Hon PM @narendramodi ji.”

Sunil Deodhar, national secretary, BJP and Incharge of Tripura said in a tweet: “General public in India is so smart that they sensed well in time what #AbhijitBanerjee said today and made @narendramodi ji & @BJP4India victorious twice with thumping majority.”

“So after heavily edited conversation with #RaghuramRajan few days back, today #AbhijitBanerjee makes this “strategic” leadership of @INCIndia fall flat on his face,” he said in another tweet.