Former Prime Minister Manmohan Singh on Monday urged the Centre to undertake immediate steps to avoid a further downward spiral of the Indian economy. In an op-ed in The Hindu, Singh said that there is a dire need to restore confidence and security among people, especially the rural masses, by putting money directly in their hands. The slowdown in economic activity is both a function of external factors such as the lockdown and behavioural changes of people and enterprises, driven by fear, he said.
"A meaningful cash transfer can restore confidence in these families. Money in the hands of people can provide an immediate sense of security and confidence, which is the cornerstone to restoring economic normalcy. India is perhaps the only large democracy that has not provided direct cash assistance of a significant amount during the COVID-19 crisis," Singh noted in the article co-authored by his party colleague Praveen Chakravarty. They cited the example of MGNREGA, under which there was a 10-time increase in those seeking employment for the month of June.
The duo noted that there seems to be a misplaced sense of apprehension that providing large cash assistance may deter people from returning to the workforce when needed and starve the industry of labour. "Such fears are stale and unfounded. In the United States, as per reports, nearly three-quarters of unemployed workers received higher pay and benefits under their government’s COVID-19 assistance than from their employers. But this has not prevented American industry from reopening. While it is inordinately late, it is still prudent to provide a significant sum as direct cash assistance to the poor which can inject confidence in them to weather this COVID-19 storm," they argued, batting for an immediate cash transfer.
Further, they also emphasised on the importance of regaining confidence in the financial system of the country. "It is critical to allow processes such as the insolvency process to function smoothly without intervention. If there is confidence among people to spend and among bankers to lend, then the private sector will spontaneously derive the confidence to reopen and invest. When firms feel confident of availability of capital and consumers, they do not need much else to kick-start production and investment," they noted.
India requires significant financial resources to meet these needs. And hence, the Central government must not shy away from making full use of loan programmes of international institutions such as the IMF and World Bank to increase its borrowings. "Higher borrowing by the government is inevitable. India cannot afford to be too fiscally restrained in these distressing times," Singh and Chakravarty said.
"Without being lured into complacency over illusionary recovery of headline numbers, the path to India’s sustained economic revival is through the philosophical pursuits of improving confidence and sentiments of all in our society, using the economic tools of fiscal and monetary policies," they noted in the article.