Abhijit Banerjee, the co-recipient of the Nobel Prize in economics for 2019, suggested that India should waive loan repayment of small businesses for the June quarter and give cash to the poorest 60% of the population as part of a stimulus package to steer the economy out of the pandemic-induced crisis.

“Spending is the easiest way to revive the economy. Because then, MSMEs (micro, small and medium enterprises) get money, they spend it, and then, it has the usual Keynesian chain reaction,” said Banerjee in an interaction with former Congress president Rahul Gandhi by video call.

Banerjee suggested the government can go beyond the three-month moratorium announced by the Reserve Bank of India (RBI) and take responsibility for loan repayments in the current quarter.

He, however, warned that the government should not give cash handouts before the lockdown is eased and people are able to make purchases, as it will have not have the desired effect.

While endorsing moratorium announced by RBI, the Nobel laureate said: “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…But beyond that, it is not clear that targeting the MSME sector is the right channel. It is more (about) reviving demand.”

According to Banerjee, a professor at the Massachusetts Institute of Technology, putting money in the hands of people will spur demand for goods and services offered by MSMEs.

He also endorsed the need for a big stimulus package as suggested by other leading economists such as former chief economic adviser Arvind Subramanian and former RBI deputy governor Rakesh Mohan.

“That is 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 (gross domestic product). United States has gone for 10% of GDP,” said Banerjee.

News Source: Livemint


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