Eminent economist and Nobel laureate Dr Abhijit Banerjee has advocted boosting spending through cash transfers to the bottom 60 per cent of the population as the most important step that the government needs to take to kickstart the economy that has been dealt a blow by the COVID-19 pandemic. Banerjee, who is credited with designing the Congress' poll promise of a minimum income guarantee scheme or NYAY, in an online discussion with former Congress chief Rahul Gandhi, said that giving a boost to spending is the easiest way to revive the economy, and agreed with Rahul that this would involve some version of a direct cash transfer to the people.
Shri @RahulGandhi speaks with Prof. Abhijit Banerjee on COVID19 & its economic impact. #InConversationWithRahulGandhi https://t.co/lSAGPZjyKh
— Congress (@INCIndia) May 5, 2020
“Absolutely. Whether it is to the poorest people, that is more debatable... I would say bottom 60 per cent of the population, we give them some money, nothing bad will happen in my view. If we gave them money, well some of them might not need it. Fine, they’ll spend it. If they spend it, it would have a stimulus effect. The only place where I’m more aggressive is that I would go beyond the poorest people,” Banerjee said.
The Professor of Economics at the MIT also stressed upon the need for a large enough 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 one per cent of GDP. United States has gone for 10 per cent of GDP.”
Interestingly, Banerjee differed with Rahul when it came to focusing on the MSME sector as a way to revive the economy. While he backed the moratorium on debt payments and even backed debt cancellation, he said that, beyond that, it was not clear that targeting the small and medium businesses is the right channel to boost the economy. “It is more reviving demand. Giving money in the hands of everybody, so that they can buy in stores or they buy consumer goods. So MSME produces a bunch of stuff that people will want. They’ve not been buying it,” he said.
On the question of easing of lockdown, Banerjee said that while he agreed with Rahul that the sooner the country came out of it the better it was for the economy, it depended a lot on the time path of the disease. “The sooner you come out of the lockdown of course depends on the disease. You don’t want to take down the lockdown when a lot of people are getting sick. So you are absolutely right. We have to kind of be aware of the time path of the disease,” he said.
Banerjee, considered an authority on the question of poverty and how to tackle it, said had the Public Distribution System been linked with Aadhar, as was proposed in the last years of the United Progressive Alliance regime, the idea embraced by the Narendra Modi government, it would have allowed the poor to be eligible for rations wherever they were, thus helping the migrant workers.
“That would have been wonderful to have right now. Sort of 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 Aadhar. I am eligible for PDS, I’m collecting PDS in Mumbai. Even though my family resides in Malda or Darbhanga or whatever,” he said.
Banerjee also reiterated the proposal made by him along with fellow economists Raghuram Rajan and Amartya Sen in an Op-Ed for handing out temporary ration cards to all the people who needed one. “Anybody who wants one, get a temporary ration card. Lasts for three months for now and maybe renewed for another three months if necessary, and honour that. Give everyone a ration card, anyone who walks in give them one. And use that as a basis for making transfers. I think we have enough stocks. I think we can keep going for a while,” he said.
On the question of whether decisions related to COVID-19 needed to be decenralised, Banerjee said certain issues, for example, the movement of migrants back to their home states, was something that needed to be handled by the Centre and not the state government. “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.”
Banerjee, in turn, asked Rahul for his views on the question of decentralisation. Rahul replied: “Decentralising as much as possible, which they can handle at the local level, is in my view a good thing. So the tendency should be to sort of parcel out things that can be managed at the district level and the state level. Of course, there are some things, like the district ollector cannot decide about airlines or railways and stuff. So I feel that the big decisions should be national. But even in the lockdown front, leeway should be given to the states i.e. you want to lock down, you want to understand the nature of your lockdown, you please do your lockdown.”
Responding to Rahul's query on the prevailing view that strong leaders can take on the virus, Banerjee said this has actually been disastrous, especially in the US and Brazil, which he said were messing up right and left. “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.”
The conversation had begun with Rahul indulging in a bit of small talk with Banerjee, asking him how his kids were finding the lockdown. “My daughter wants to be with her friends. My son is younger, and he is happy to have a parent at hand at all times. For him, it's not a bad thing,” he said. Rahul also asked him whether the Nobel prize had come as a surprise for him or if he was expecting it, and Banerjee said it had actually come completely out of the blue. “I had no premonition or expectation. It was completely a surprise,” he said.
This was the second in the series of interactions that Rahul will be having with experts on COVID-19 and the ways to tackle its socio-economic impact. Rahul had last week held an online discussion with noted economist and former governor of the Reserve Bank of India Raghuram Rajan.
