Spending will revive economy: Abhijit Banerjee

"Spending is the easiest way to revive the economy," said Nobel laureate and eminent economist Abhijit Banerjee while interacting with former Congress president Rahul Gandhi on the economic situation during the pandemic.

Suggesting a stimulus package for at least 60 per cent of the people who are in the bottom of economy, he said targeting will be costly at this moment. 

Agreeing to the assumptions that a lot of businesses are going to hit, he said, people 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 one per cent of GDP. United States has gone for 10 per cent of GDP," he said. 

Banerjee said it was wise to put a moratorium on debt payments. "We could do more than that. We could even say that the debt payments for this quarter will be cancelled and will be taken care of by the government. So you could do bit more than that, so that you don’t actually have to pay for a quarter where you never to," he said and added that it’s not just a matter of rescheduling, but permanently cancel it. "We could do that. But beyond that, 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. They’ve not been buying it. If they had money or even if you promise them money, it doesn’t have to be that the money is right now. If you are in the red zone, you can say look whenever lockdown is lifted will have money in your account, Rs. 10,000 in your account and you can spend it," he said. 

Banerjee added "I think spending is the easiest way to revive the economy. Because then the MSME people get money, they spend it and then it has the usual Keynesian chain reaction."

He said he would argue for broader measures for the poor. "I think targeting is extremely costly. You try to target in this mess, who has become poor after their shop was shut for six weeks. I don’t know how you’d figure this out. 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 that you are in that sentence is that I would go beyond the poorest people," he said.

 He said the government should introduce a mismatch of supply and demand by giving people spending power. "If people were reassured that in 2 months or whenever the lockdown is lifted, they will have some money in their hands, they will be much less worried about (it), they will be more willing to spend already. Some of them have some savings. I feel you must not necessarily rush into it, because there may be places where there is no production right now, no supply right now. Putting money will just burn the money, there will be inflation. You want to wait for that. With that caveat, yes, soon," he said. 

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