Put cash in people's hands to revive economy: Abhijit Banerjee

Nobel laureate Abhijit Banerjee on Tuesday pitched for writing off a lot of debt payments to prevent businesses going bankrupt and putting cash in the hands of the bottom 60 per cent of the population to kickstart the economy as India emerges from the lock down to combat COVID-19.

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In a conversation with Rahul Gandhi, Banerjee was appreciative of the steps taken by the Modi government for putting a moratorium on debt payments and suggested that the government go beyond and waive debts altogether at least for the current quarter to provide succour to the micro, small and medium enterprises.

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“We need a 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 1% of GDP,” Banerjee said, pointing out that the US has spent 10 per cent of GDP on fiscal stimulus.

He also suggested that the government needed to go beyond the UPA-era initiatives of MGNREGA and National Food Security Act to reach out to the people who have been left uncovered by these programmes.

Banerjee appeared to disagree with Rahul’s push for a package to the MSME sector and instead made a strong pitch for putting cash in the hands of the people to spur demand to re-start the economic cycle.

“It is not clear that targeting the MSME sector is the right channel. 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….I think spending is the easiest way to revive the economy,” Banerjee said.

Banerjee, an Indian-American economist, won the 2019 Nobel Prize in Economics, along with Esther Duflo of the Massachusetts Institute of Technology and Michael Kremer of Harvard University “for their experimental approach to alleviating global poverty”.

“I think we have to be willing to take some amount of mistargeting, malfeasance. Some money will be stolen. But if we sit on our hands, and say that we don’t want to do anything that could go possibly wrong, then we’ll make sure it goes wrong,” the Nobel laureate said.

He said the US too, the Republican administration run by a bunch of financiers, have realised that the need of the hour was to pump money into people's hands.

“I think we should take a cue from that… they have decided that just for economic survival we need to pump money into people’s hands,” Banerjee pointed out.

This was Rahul's second interaction with global and Indian thought leaders in an attempt to shore up his image that had taken a beating after the successive electoral losses to Narendra Modi. Last week, Rahul kicked off the series of interactions with former RBI Governor Raghuram Rajan.