Abhijit Banerjee in conversation with Rahul Gandhi: Ensure the bottom 60% have money to spend 

The lockdown having made it clear that a large section of the Indian population does not have access to Government’s welfare schemes, Prof Banerjee suggested, the Government would do well not to pick and choose beneficiaries. Anybody who wants a ration card should be given a ration card, he said. And the bottom 60% of the population should be given cash to spend.

The Nobel laureate was speaking to Congress MP and party’s past president Rahul Gandhi earlier this week. Strongly advocating that money be made available to state governments along with the freedom to try out their own schemes and be creative in reaching out to people who are excluded, Prof Banerjee had this to say:

“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.”

Dominant castes, elite groups and other entrenched lobbies, he agreed with Rahul Gandhi, could well corner a part of the food rations and cash. But that is a risk, he felt, was worth taking to tide over the looming crisis.

Rahul Gandhi pointed out that a large number of MSME units are staring at bankruptcy and millions of Indians are likely to fall back into the poverty trap. Ending the lockdown in a phased manner, decentralising decision making and some kind of cash transfer on the lines of NYAY proposed in the Congress manifesto last year, he suggested, was urgently required. The economist, while agreeing with the Congress leader, he would go beyond the poorest and would not advise spending precious time and energy in finding the deserving beneficiaries.

This is what Prof Banerjee said during the conversation:

1. Good policies put in place by the UPA like MGNREGA, Food Security Act and Aadhaar are no longer adequate in the current situation. Those policies were worked out on the assumption that anybody who is not where they are supposed to be is actually working and earning an income and the state doesn’t have to worry about them. Post-lockdown, this assumption has collapsed and we find a large number of people, especially migrants who are not covered by those schemes.

2. It would have been wonderful to have Aadhaar based claims across the country— you would be eligible wherever you are. A lot of people would have then gone to the local ration shop and said that this is my Aadhaar. I am eligible for PDS, I’m collecting PDS in Mumbai, though my family resides in Malda or Darbhanga or whatever. That’s my claim. And the fact that didn’t happen means that there are a bunch of people for whom there isn’t really a system. They aren’t eligible for MGNREGA, because there is no MGNREGA in Mumbai. And they are not eligible for PDS because they are not residents. So, how do we deal with them?

3. Reviving demand by giving money in the hands of everybody is the key. 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. I have no money, I am not buying anything because my shop is closed. But then your shop is closed because I am not buying anything from you. I do think that maybe we should introduce a mismatch of supply and demand by giving people spending power…or you get a promise that you’ll get the money so that you stop panicking and stop completely starving yourself, so that you have a little bit of savings left. If people were reassured that in two 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

4. We need a stimulus package. That’s what the US is doing, Japan is doing, Europe is doing. But we really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. United States has gone for 10% of GDP. Rather than rescheduling debt of the MSME sector, I think it might be better to just permanently cancel it, say for a quarter. Targeting individual sectors for stimulus, I don’t think, is the way forward. 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 don’t want us checking everybody’s locus standi and whether they are eligible for this or not. There may be places where there is no production right now, no supply right now. Putting money there will just burn the money, there will be inflation. You want to wait for that. With that caveat, yes, the stimulus and cash transfer should happen soon.

5. A basic minimum income as envisaged by NYAY, I would say, is the way forward. But I would go beyond the poorest. I would think that giving some money to the bottom 60% of the population is what we should aim at. 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.

6. Anybody who wants one, should get a temporary ration card. Lasts for three months for now and maybe renewed for three more months if necessary. Give everyone a ration card, anyone who walks in give them one. I think we have enough stocks. The Rabi crop has been good this time, so we are going to have tons of wheat and rice. This should be immediately distributed to people for three months, for six months if necessary. In an earlier conversation that Rahul Gandhi had with Dr Raghuram Rajan, the former RBI Governor had estimated that giving food and cash to the poor for the next three months would not cost more than Rs 65 thousand Crore.