Nobel laureate Abhijit Banerjee on Tuesday said that India should consider a big stimulus and give cash in hand to create demand and prevent chains of bankruptcies to save the economy hit hard by the nationwide coronavirus lockdown.
"India needs a stimulus package. We have not dedicated a large enough financial package yet," he told former Congress president Rahul Gandhi during a conversation.
"Spending is easiest way to revive economy. It will have stimulus effect," Banerjee added.
Gandhi is currently holding a series of conversations with global and Indian thought leaders to discuss the Covid-19 crisis and its consequences on the Indian economy.
Banerjee said the Indian government should issue temporary ration cards for three to six months for every person who needs food grains to save their lives. "Use those ration cards for transferring money, wheat and rice to them," he added.
Banerjee, an Indian-American economist, had 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".
The three were recognised for their ability to divide the issue of tackling global poverty into smaller subjects.
Banerjee told Gandhi that it is important to revive demand. "Nothing bad will happen if we give money to bottom 60%. But to give direct cash transfer to only poorer people is debatable," he said.
On April 30, Gandhi was in dialogue with former Reserve Bank of India (RBI) governor Raghuram Rajan who suggested that the Indian government transfer cash directly to the poor and supply food through the public distribution system (PDS) to as many people as possible to help them tide over the impact of the coronavirus disease (Covid-19) outbreak and the consequent 40-day lockdown, estimating the effort will cost Rs 65,000 crore.
The money is small given that India's gross domestic product is to the tune of about Rs 200 lakh crore, he had said.
Banerjee said the Aadhaar-based claims for PDS would have saved a lot of misery for poor as many of them are still not in the system.
"We should take a cue from the US by pumping in more money in the hands of people to revive demand. Also, it is wise to put moratorium on debt payments," he said.
On lifting the lockdown, Banerjee called for caution. "You can't take out the lockdown when a lot of people are getting sick. We need to be aware of disease's path before taking a decision on lifting the lockdown," he added.
The Nobel laureate said that India should be optimistic about the overall economic revival post-lockdown.
On the centralisation versus decentralisation debate, Banerjee said there is a visible tension as evident from the movement of the migrant workers which could not be handled by state governments only.
The central government should have tested the migrant people before they boarded the trains for their home towns, he added.
Banerjee also suggested that state government should be given money to chalk out their own schemes aimed at reaching a wider section of the people and not thing about some of that money getting wasted.
"Be brave and take risks. When you are in dire straits, being brave is the only option," he said.
Banerjee said the strongman theory has been disastrous in the US and Brazil where the leader are "messing up" right and left.