The Union Government should look at providing cash support to the bottom 60 per cent of India's population, Nobel laureate Abhijit Banerjee has said.
"I would say the bottom 60% of the population, we give them some money... Well, some of them might not need it. Fine, they'll spend it. If they spend it, it would have a stimulus effect," Banerjee, who shot to international fame with his book Poor Economics that was based on his work on the neglected, said in a video conversation with opposition leader Rahul Gandhi.
"Getting some cash into the hands of the population is the best way to kick start the economy. The USA is very aggressively doing that," he pointed out.
The suggestion comes at a time when policymakers and economists have been debating on how to revive the economy and livelihoods which have been hit by the coronavirus lockdown. While India has come up with the first tranche of Rs 1.7 lakh crore worth of relief measures, more is believed to be in the offing.
The top economist felt India needed to come up with a large stimulus package on the lines offered by the American, French and other European countries to help revive demand in the economy.
"We really haven't decided on a large enough stimulus package. We are still talking about 1 per cent of GDP. United States has gone for 10 per cent of GDP," Banerjee, who is the Ford Foundation professor of economics at MIT said.
While the Niti Aayog and a few chambers are believed to have suggested a package equal to 5 per cent of India's GDP, the Government is believed to be working on a second tranche which could equal another 0.5-1 per cent of GDP on top of the 0.7 per cent already given. However, other economists have argued for a package that could be equal to 8-10 per cent of GDP.
Stressing on a package for the weaker section of society, Banerjee said, "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."
The economist, who was awarded the Nobel last year along with his wife Esther Duflo and Michael Kremer, also advocated canceling debt payment for a quarter for the MSME sector instead of a moratorium.
"We have done one thing that I think is wise, which is to kind of put a moratorium on debt payments... We could do more... say that the debt payments for this quarter will be canceled and will be taken care of by the government."
Financial experts have been warning of a looming bankruptcy crisis in the MSME sector which has been suffering from low demand and high costs for several years and the moratorium along with cheap working loans had been offered as a way out.
Banerjee also suggested that sections of the populace were left out of transfers and food aid because of the lack of ration cards. He suggested that anybody who needed food aid could be given temporary ration cards for 3-6 months so that all people could be covered by food aid.
"Give everyone a ration card, anyone who walks in gives them one. And use that as a basis for making transfers... The Rabi crop has been good this time, so we are going to have tonnes of wheat and rice. So, at least wheat and rice we can keep giving out.”