India needs large stimulus package: Abhijit

Cautions against hasty lifting of lockdown

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BQ: We should try to be optimistic about the survival of the overall wellbeing of the country. We need a stimulus package. That’s what the US and Japan is 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. — Nobel Laureate Abhijit Banerjee

Tribune News Service

New Delhi, May 5

Advocating optimism about overall economic survival of India in times of Covid, Nobel Laureate Abhijit Banerjee said today that the country should look at a large stimulus package to boost spending to revive the economy.

In a 25-minute conversation with Congress leader Rahul Gandhi, Banerjee argued for putting money in the hands of bottom 60 per cent people to spur demand. He also said had Aadhaar-linked entitlements been used, much of food insecurity around Covid and related misery could have been avoided.

The top economist was not too excited about Congress engagement with a credit package for micro, small and medium enterprises (MSMEs) and said money in the hands of people was better.

Cautioning against a hasty retreat from the current lockdown, Banerjee said any decision in this respect must depend on the time path of the disease.

“We should try to be optimistic about the survival of the overall wellbeing of the country. We need a stimulus package. That’s what the US and Japan is 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,” Banerjee said.

On MSMEs he called for cancellation of debt payments for the quarter and added, “Behind debt cancellation, it is not clear that targeting the MSME channel is the right channel. More important is 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.”

When Gandhi cited minimum income guarantee plan to the poorest as a solution in Covid times, Banerjee pitched for a broader base for a financial package.

“Targeting is extremely costly. Give the bottom 60 per cent of the population. Nothing bad will happen. It would work as a stimulus,” Banerjee said adding that the government should not worry too much about checking people’s locus standi to get the money.

The ace economist also warned the government against inducing a mismatch of demand and supply by giving people spending power where the entire retail sector is shut down. That will burn the money, he said.

“People should get money when they can go and buy,” he said. Banerjee also argued against the cult of a strong leader. When Gandhi asked him about the perception that it needs a strong leader to fight the virus, 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 them of that belief.”