Nobel laureate Abhijit Banerjee in conversation with Congress leader Rahul Gandhi said, “Spending is the easiest way to revive the economy. A direct transfer to people to spend is a good way to ensure this” ”
Talking about the need for the stimulus package, Banerjee said, “Several countries have introduced a stimulus package for small businesses. We are yet to take concrete steps towards it. Moratorium on debt payments is a good move but we need to do more ”
“We are going to have a bigger demand problem. Because it is the usual problem. 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, said Banerjee.
Here is the entire transcript of the conversation:
Rahul Gandhi: First of all, thank you very much. I appreciate you giving your time. You must be busy.
Dr. Banerjee: Not any more than you.
Rahul Gandhi: It’s a bit surreal that everything is locked up.
Dr. Banerjee: It is that, surreal but also frightening. I mean that it’s not that anybody actually knows what is going to happen next.
Rahul Gandhi: And you have kids, so how are they finding it?
Dr. Banerjee: My daughter is a little (unclear) crazy. She wants to be with her friends. My son is younger, and he is happy to have a parent at hand at all times. For him it’s not a bad thing.
Rahul Gandhi: But there is a full lockdown there. So they can’t go out?
Dr. Banerjee: Oh no. we can go out. We can walk around. There is no restriction on walking, cycling, or even driving. It’s just that you are not supposed to get together with more than, I don’t know…Some number of people.
Rahul Gandhi: Before I start, I have this curiosity. You got the Nobel Prize. Were you expecting it? Or did it come out of the blue completely?
Dr. Banerjee: Completely came out of the blue. I think it’s one of these things…Which if you spend time worrying about it, you could obsess a lot. And I’m reasonably good at not obsessing over things that are not…do not have an immediate impact on my life. I had no premonition or expectation or … it was completely a surprise.
Rahul Gandhi: I mean it was quite a big deal for us in India. You made us proud.
Dr. Banerjee: Thank you. I mean it is a big deal. I wasn’t saying it is not a big deal. I just think that you can obsess about it, but it’s not that there is a process for it that is understood by anybody. So, anything can happen.
Rahul Gandhi: So, one of the main things I wanted to discuss with you is the impact of COVID and the lockdown and the economic devastation on our poor people. And, how we should be thinking about it. We’ve had in India for some time, a policy framework, particularly when we were in the UPA, of providing sort of a floor for poor people. For example; MGNREGA, Right to Food etc. and now a lot of that work is going to fall by the wayside because this disease has come in, and millions and millions of people are going to fall back into poverty. This is something… How should one think about this?
Dr. Banerjee: I think these are kind of separable in my view. In the sense that I think the real problem in the very short run is that these good policies put in place by the UPA are (currently) inadequate. And the government in a sense absolutely embraced them. It was not that there was a particular partisan disagreement. It was very clear that the UPA instruments will be used for doing whatever it is.
I think what is harder to wrap one’s head around is about what do we do with the people who are not covered by that. That is a lot of people. The migrants in particular. One of the ideas that were mooted in the last years of the UPA but also embraced by the current government was the idea that the Aadhar would be made national and therefore would be used for PDS and other things. Aadhar based claims on PDS would be … you would be eligible wherever you are. That would have been wonderful to have right now. Sort of looking back right now, that would have sort of saved a lot of misery. Because then a lot of people would have then gone to the local ration shop and then said that this is my Aadhar. I am eligible for PDS, I’m collecting PDS in Mumbai, even 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 Bombay. But they are not eligible for PDS because they are not residents.
The part of the problem in the very short run is that the conceptualisation of the welfare structure was based on the idea that anybody who is really not in where they are supposed to be is actually working and therefore is earning an income and you don’t have to worry about them. And that’s what has collapsed.
Then the question of poverty, it is not obvious to me that if the economy revives there needs to be a durable effect on poverty. Real concerns are- will the economy revive and in particular, how does one think the possible time paths of this disease through that process. I think we should try to be optimistic about the survival of the overall economic well-being of the country. It’s just ….. take the right actions.
Rahul Gandhi: But lot of these people get their jobs from small and medium businesses, which are going to have a sort of cash flow problem. And a lot of those businesses are going to go bankrupt because of the shock. So, there is also a link between the economic damage that is going to come to those businesses and the ability of these people to maintain a job.
Dr. Banerjee: That’s the reason; a lot of us have been saying that we 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 1% of GDP. United States has gone for 10% of GDP. There is a sense in which I think we have to …. The MSME sector is mostly easy… we have done one thing that I think is wise, which is to kind of put a moratorium on debt payments I would say. We could do more than that. We could even say that the debt payments for this quarter will be canceled and will be taken care of by the government. So you could do a bit more than that so that you don’t actually have to pay for a quarter where you never to …..It’s not just a matter of rescheduling it, just 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. 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.
Rahul Gandhi: So, we are talking about some version of NYAY or direct cash transfer to the people.
Dr. Banerjee: Absolutely. Whether it is to the poorest people, that is more debatable. I would argue for a broader … I think targeting is extremely costly. You try to target in this mess, who has become poor after their shop was shut for 6 weeks. I don’t know how you’d figure this out. I would say the bottom 60% 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 than you are in that sentence is that I would go beyond the poorest people.
Rahul Gandhi: So, you are talking about massive priming of the pump, upfront. So you start up the demand as soon as possible.
Dr. Banerjee: Absolutely. I have been saying that. Even before this happened, I have been saying that we have a demand problem. Now we are going to have a bigger demand problem. Because it is the usual problem. 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.
Rahul Gandhi: I think implicit in what you are saying is that you need to do it faster, rather than slower. So, the faster you do it, the more effective it is going to be. Every second lost is actually damaging.
Dr. Banerjee: You are right in saying that I want it fast, I don’t want us to have to check everybody’s locus standi and whether they are appropriate for this or not. I do think that maybe we should introduce a mismatch of supply and demand by giving people spending power where we have shut down the entire retail sector because we are in the red zone or something. We need to plan that bit better than so that you get the money when you can go out and buy. Not now. 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 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.
Rahul Gandhi: So that sooner you are able to come out of a total lockdown, the better it is. You need a strategy for that, that begins to start a part of the economy quickly. Otherwise, money is useless.
Dr. Banerjee: The sooner you come out of the lockdown of course depends on the disease. You don’t want to take down the lockdown when a lot of people are getting sick. So you are absolutely right. We have to kind of be aware of the time path of the disease.
Rahul Gandhi: The other thing that is slightly different in India is the food issue, (the) scale of the food issue. We have a large number of people who don’t have ration cards. There is an argument being made that hand out what is in the godown, because it is going to get more and more full as the harvest comes in, so move aggressively on that.
Dr. Banerjee: In fact, we wrote an OpEd with Raghuram Rajan and Amartya Sen, saying literally that handout temporary ration cards to anybody who wants one. In fact, put other ration cards in abeyance, just put temporary ration cards. Anybody who wants one, get a temporary ration card. Lasts for 3 months for now and may be renewed for another 3 months if necessary, and honour that. Give everyone a ration card, anyone who walks in gives them one. And use that as a basis for making transfers. I think we have enough stocks. I think we can keep going for a while. 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. I don’t know if we have enough Dal or not. But I think the government promised Dal as well. So hopefully we have enough Dal and cooking oil etc. But yes, we can definitely do that and should do that, give out temporary ration cards to everyone.
Rahul Gandhi: What else do you think should be part of the package that the government is thinking of? We have spoken about the Small and medium industries, migrant labour, the food issue. Any other thing that you think should be on that list?
Dr. Banerjee: I think the last piece of this is, to get cash to people who really need some machinery. We can’t really get cash to people. People who have the Jan Dhan accounts, they can get the money. But many people don’t. And especially, migrants may not have access to that, etc. We need to also think about what happens to a substantial part of the population that does not have access to these things. And probably the right answer is that we should give a bunch of money available to the State Governments to try out their own schemes, to be creative in reaching people who are excluded using NGOs… I think we have to be willing to take some amount of mistargeting, malfeasance. 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.
Rahul Gandhi: There is a balance between the Centralisation aspects and the Decentralisation aspects. Each state has its own nuances. Kerala is doing something completely different, UP is doing something completely different. But the Central Government also has a particular role to play. But there is a tension I can see between these two ideas.
Dr. Banerjee: You are completely right that this is tension and clearly the migrant movement question cannot be handled by a State Government. It is a bit odd that it is being handled so much bilaterally. In a sense I feel like that is a problem. This is a place where you don’t want to decentralise because you want to actually aggregate the information. If this is a population of people who were very infected, you don’t want them to be moving through the whole country. I feel this is a place where we should have tested people where they are allowed to board a train or something. That is a central question and something that only a federal government can do. Tell the Government of UP that you cannot just bring your migrants home. Conversely, the question of how to serve migrants in Bombay city is the Maharashtra Government’s problem or the Bombay City Municipality’s problem. You can’t have the federal government resolving that. I think you are right about that. But right now what’s your thought on that? It seems like it is something cannot be resolved. But in the longer run, we need to think of institutions that are robust. But right now I don’t see what we can do about it.
Rahul Gandhi: I feel like you have to create option value. Decentralising as much as possible, which they can handle at the local level is in my view a good thing. So the tendency should be to sort of parcel out things that can be managed at the district level and the State level. Of course, there are some things, like the District Collector cannot decide about airlines or railways and stuff. So I feel that the big decisions should be national. But even in the lockdown front, leeway should be given to the States i.e. you want to lock down, you want to understand the nature of your lockdown, you please do your lockdown. Give option value to the State and the State can actually decide ok I’ll do that and I won’t do that. And the risk sort of comes on the State and they would manage it better. I think the current Government has a slightly different view. They prefer to manage, see this thing, and centralise it. These are two perspectives, I don’t necessarily think one is wrong or one is right. I veer towards the decentralisation.
Dr. Banerjee: I think what I would have done is announced a bunch of money available for proposing good schemes for reaching the poorest people and let’s test and innovate. And I think there are good NGOs in most States who can be brought into that process. And as you said District Magistrates often have great ideas. And we might just benefit from all of that.
Rahul Gandhi: Are there experiences in other countries that you found interesting?
Dr. Banerjee: I’ll tell you one thing Indonesia is doing right now. Indonesia has decided that it is going to give out cash transfers and it is going to give it out entirely through a community decision making process. So, the community will decide, who are the people who are needy and choose them for the transfers. We have worked with the Indonesian government exactly on this issue, and we realised that it doesn’t do any worse than centralised targeting. You don’t get captured by special interest or anything. What you get is that people make judgments about what is appropriate in a much more locally nuanced way. I think that is an experience you could learn from. They have very much gone in the direction of telling the community, that here is some money, give it to the ones who are the most needy. In an emergency that is a good policy because the community has some information that you couldn’t possibly centralise.
Rahul Gandhi: In India, you would run into the dominant caste problem, where the dominant caste would try to shape that money for you.
Dr. Banerjee: Maybe. But on the other hand, you worry … in the process of trying to prevent that. I would try to put in place extra money to allow for that than to try to figure out who are the deserving people in the village. That drives (a) bit in the direction of what you’ve been saying and the government has also been saying (that it) is trying to widen the reach of PDS and make that basically quasi-universal. So that is one way to avoid that.
But you want to do more than that to get cash to people. Some people have this Jan Dhan account and some people don’t. Some people are on MGNREGA rolls, that is another way to get cash. Some are in the Ujjwala lists and some are not. Once you got through the list, you find that there are a bunch of people, many many millions who are excluded and how do you serve those people? For that, it is clear that there should be some funds available to some fairly local authority who can identify those people and serve them. I don’t disagree with you that there might be elite capture of some form. We worried about that a lot in Indonesia, but we didn’t find much evidence of that. I think we have to take a chance that some of this would go wrong. But if we don’t take a chance, we will surely get into trouble.
Rahul Gandhi: So be brave. Take risks because we are in a bad situation.
Dr. Banerjee: When you are in dire straits, being brave is the only option.
Rahul Gandhi: How do you see this thing playing, once the disease washes out, six months from now, from the poverty aspect? There is going to be an economic backlash, bankruptcies. How do we think of it in the medium term as opposed to the immediate short term?
Dr. Banerjee: That is sort of what we were talking about, the question of demand shortfall. There are two concerns- i. How to avoid a chain of bankruptcies. Maybe writing off a lot of debt is the way to go, as you had mentioned. The other is demand shortfall, and 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. This is a Republican administration run by a bunch of financiers. If they are willing to do it, we should be willing to do it. This is not run by a bunch of socially-minded liberals, but by people who used to work in the financial sector. But they have decided that just for economic survival we need to pump money into people’s hands. I think we should take a cue from that.
Rahul Gandhi: This is also changing the balance of power in the world to some extent. That is also pretty clear. How do you think about that?
Dr. Banerjee: I am very worried about countries like France and Italy. Especially Italy which had a disastrous outcome and partly that is a result of the State …… the Italian State has been run by mainly not so distinguished people for a while. As a result, the health system was on its last legs. The US moving in a much more nationalist direction is extremely frightening for the world. The rise of China is a threat and if the US starts reacting to it, it will be an extremely destabilising threat. That is something to worry about a lot.
Rahul Gandhi: The underlying undercurrent is that strong leaders can take on this virus. What is being sold is that it requires one man to charge in against the virus.
Dr. Banerjee: That has been disastrous. The US and Brazil are two countries that are messing up right and left. These are two ‘strongmen’ behaving like.. pretending like they understand anything.. but even what they say every day is kind of laughable. If anyone wanted to believe in the strongman theory, this is the time to disabuse themselves.
Rahul Gandhi: Thank you. Thank you very much. Please when you are in India, let’s have a cup of tea or something. Regards to everyone at home
Dr. Banerjee: Likewise, and take care of yourself