'Stimulate demand by getting money in hands of poor'

The Indian economy needs more of temporary welfare schemes targeted on the poorer sections of the society, than the corporate tax cut in order to revive the consumption, according to Nobel Laureate Abhijit Banerjee.

“Right now, I would say that, if we have to invest, we should invest in road building or something, which generates immediate demand for consumption. Poor people work on the buildings. Don’t invest in the corporate tax cuts. You want to stimulate demand by getting money in the hands of the poor,” Banerjee told DH, on sidelines of his book launch at the Bangalore International Centre (BIC).

The government, in September 2019, announced a cut in a corporate tax cut – a stimulus which it expects to cost around Rs 1.45 lakh crore. However, many experts have been of the opinion, that this tax cut will not help revive the demand in the economy as it is a supply-side measure and not a demand-side measure.

Banerjee has long been seen as a huge proponent of the welfare state and played a role in the 2019 Lok Sabha polls by contributing to the Congress idea of the Nyuntam Aay Yojana (Nyay), which the opposition had made a prominent election plank.

Banerjee also advised the government to wait for the economy to recover to make the long-term measures.

“The question is about the short term versus the long term. India needs economic stimulus now – something that will increase the demand. And for that, I would say that don’t make the long-term schemes. Long term schemes tend to have durable consequences. I think it needs to be dealt with short term measures. There are a lot of instruments that are targeted at getting money into the hands of low-income people, but not a permanent scheme forever. Those of separate things. If the economy recovers, we would move some of the money to investments,” he said.

Banerjee was in the city for the Bengaluru-launch of his book Good Economics for Hard Times.