What I will argue for in this article is quite unorthodox and contrary to the conventional economic arguments that we are used to. I propose that in order to tide over the COVID 19 crisis and kick start the economy; the government should consider printing money and transferring the equivalent amount directly into the thirty crore Jan Dhan accounts. This will work to seamlessly ensure that the money reaches the masses while acting as a stimulant to revive demand.
In economic terms, we call it monetizing the fiscal deficit that is a red herring in traditional economic logic, as most economists would rightly argue against printing money to finance deficits, citing inflation as a major concern. The reason is that printing more money doesn’t increase economic output – it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices. In a normal world, printing money will just cause inflation hence the amount of money in circulation has to be in line with the economic output being produced by the economy.
However, the world is far from normal right now. The Indian economy in particular is suffering from the double whammy of supply-side constraints due to the unavailability of labor for production as well as demand shortfall due to loss of income and a general dampening of consumer sentiments leading to a sharp drop in consumption.
Add to that the fact that the industries, as well as renowned economists in India and abroad, have been recommending a fiscal expansion that the government has been loath to undertake for reasons best known to them. The much-touted 20 lakh crore stimulus package estimated at more than 10% of the GDP failed to impress and the sentiment was aptly summed up in a report by Credit Suisse Wealth Management, that stated that the government’s stimulus package lacks major near-term support for the economy and may not be adequate to restore India’s growth trajectory, news agency PTI reported. Credit Suisse said the actual fiscal spending that the Indian government will do is around Rupees 2 lakh crore, translating to just 1% of the gross domestic product, indicating that the government is taking fiscal caution in dealing with the pandemic. India’s stimulus package includes monetary measures taken by the Reserve Bank of India as well.
In such a scenario, a direct cash transfer amounting to a fiscal expansion of just another percent of GDP totaling to an additional 2 lakh crores would put more than 70,000 rupees as a one-time benefit in the account of all Jan Dhan account holders on the lines of the NYAY scheme espoused by the Congress in General Elections in 2019. The benefits of such a scheme have been highlighted in the first pilot study on Universal Basic Income (UBI) in India, where the lead researcher Sarath Davala, said that it will help the country eradicate poverty.
Such a move will not only help in generating demand in the economy but will also alleviate the extreme rural distress that has been exacerbated by the millions of migrant laborers who have returned home but have little or no work. The increased demand will hopefully set off a virtuous cycle that will help small and medium industries rekindle their order books, thus re-generating demand for labor, triggering a reverse migration of labor leading to the start of productive activities which will eventually help the economy get back on its feet.
Unusual times demand unconventional thinking and if there was ever an opportunity to try something new and unconventional, then the time is now. Bold steps like printing money and giving it to people might just re-write the conventional economics textbooks with a chapter on the “Great Indian Economic Revival”.
During this post, you have shared fantastic content. This article provided me with some useful knowledge. Thank you for sharing that. Keep up the good work. financial advisors san antonio
ReplyDelete