Go Brave, or Go Home.

Rahul Gandhi and Abhijit Banerjee had a chat today on problems with the current approach to fighting COVID-19 and the economic downturn, making food and money available to the poor, reviving demand, putting in place a machinery for implementing urgent measures, and global trends. 

Here are the key takeaways from Rahul Gandhi and Abhijit Banerjee’s conversation aired today, arranged topic-wise.  The folly of the current policy approach - Policies put in place by the UPA were good but are inadequate. The new government embraced them, and are continuing with them even during this crisis. - One key failing of the welfare system is that many are simply not eligible or reached by schemes like MGNREGA today in the middle of this crisis. Everyone needs to be made eligible for PDS (Public Distribution System) based on their Aadhaar cards, something mooted by the UPA and agreed upon by the present government but not implemented. Then even a migrant in Mumbai, from Darbhanga or Malda, not eligible for MGNREGA - because there is no MGNREGA in Mumbai - can access PDS through his Aadhaar. During this crisis the welfare structure conceptualised on the assumption that "anyone, who is not where they are supposed to be must be working and earning an income and therefore we don’t have to be worried about them" has collapsed.  - The problem of people sinking into poverty and the economy collapsing may be linked to some extent but they need to be viewed separately.  Helping the MSME sector but, beyond that, reviving demand - Jobs, especially of the poor and the migrant class, will be affected by the impact of the economic downturn on the MSME (Micro, Small and Medium Enterprises) sector. What is needed for this is a stimulus package like what the US, Japan and Europe have put in place. The US - currently governed by “a Republican administration being run by a bunch of financiers”, not “socially-minded liberals” - has a package worth 10% of its GDP. We are still talking about one just worth 1% of our GDP.  - We have put a moratorium on debt repayments for a while and that is wise. It would be even better if debt payments for a quarter could be cancelled instead of deferred and taken care of by the government.  - But we cannot stop at attempting to target the MSME sector, we have to also focus on reviving demand by putting money in the hands of everyone so that they buy consumer goods - including what the MSME sector produces. This will create a Keynesian chain reaction. (Money spent by consumers will help revive producers and manufacturers and in turn, their suppliers. This has the potential to further increase demand by increasing employment/stemming unemployment and ensuring those employed in these sectors are also going out and buying more creating a ripple effect.) - We had a demand problem before the pandemic struck, now we have a bigger demand problem. The simplest way to understand this problem is to imagine this scenario: ‘I’m not buying anything as I have no money because my shop is closed. But then your shop is also closed because I’m not buying anything from you.’  Watching for a mismatch of supply and demand - For people in the Red Zones, because the retail sector is shut and they can’t really buy right now, you can promise that once the lockdown is lifted they will have a certain amount of money, say Rs 10,000, in their bank accounts. With this assurance - say, that in 2 months or whenever the lockdown is lifted they will have some money in their hands - people will stop panicking or thinking of starving themselves just to have some savings left. People who have some money in their hands will be more willing to spend it. But we have to watch for a mismatch of supply and demand and so not put in money where there is no production or supply right now (instead promising to do so later). Else there will be inflation. (If you give money to people in a zone where supply is short - demand for goods will go up but because the supply will not be able to keep pace due to restrictions, prices of the scarce goods will shoot up.) Give the bottom 60% money - Targeting the ‘poorest’ people will be extremely costly. Eg. It will be difficult to figure out, in the middle of this crisis, who has become ‘poor’ because their shop has shut for 6 weeks. Instead give the bottom 60% of the population money. Even if some of them don’t need it, they will spend it and then it will have a stimulus effect (as explained above).  Timepath of the disease - We will have to think of strategically starting parts of the economy, but how soon we can come out of the lockdown will depend on the timepath of the disease. Else we will risk a lot of people getting sick. We cannot afford to be reckless about opening up if the disease is still spreading. Ration cards for all - An op-ed written by Amartya Sen, Abhijit Banerjee and Raghuram Rajan said that temporary ration cards should be handed out to anyone who wants one. These can be effective for 3 months and be renewed for another 3 months if necessary. We have enough food stocks. The Rabi crop has been good so we have enough wheat and rice. The government has promised dal so that indicates we have dal as well. And also, possibly, cooking oil.  Machinery for transferring cash - Many people don’t have access to Jan Dhan accounts so we have to think of the machinery for getting cash to them. For this we should give money to state governments to try their own schemes and be creative in reaching out to the excluded, maybe using NGOs.  - We have to be willing to take some amount of malfeasance and mis-targeting. Some money will be stolen. But if we sit on our hands saying we don’t want anything to go wrong, then things will go wrong. Balance between centralisation and decentralisation - There has to be a balance between centralisation and decentralisation. For instance, the migrant movement question has to be handled by a central government. Information has to be aggregated. Populations that are infected shouldn’t be moving throughout the country. People should have been tested before being allowed to board a train. But how to serve the migrants in, say, Mumbai, is a state (Maharashtra government) and local (Brihanmumbai Municipal Corporation) problem.  - You need to decentralise what can be managed at the district and state level. Eg. the decision on whether to lockdown and the nature of the lockdown should be taken by states, with them taking the risk and the responsibility. Bigger national decisions, like those involving airlines and trains, should be taken by the centre.  - There could be a lot of money announced for states proposing good schemes for reaching the poorest people which can then be tested and innovated. NGOs and District Magistrates can be roped in for implementing these.  Using local communities and authorities - Indonesia has decided to give out cash transfers through a community decision making process. The community decides who is needy and eligible. It doesn’t do any worse than central targeting. In an emergency it’s a good policy because the community has information you can’t centralise.  - In India the dominant caste in a village may try to take control of that process. To balance against/prevent this there can be extra money put in the direction of measures like widening the reach of the PDS and making it quasi universal. But the truth is many people don't have Jan Dhan accounts, and aren’t on MGNREGA rolls or Ujjwala lists and to get money to them you have to make funds available to a fairly local authority who can identify and serve them. Banerjee adds that he worked with the Indonesian government on their cash transfer system and didn’t find much evidence of elite capture (monies being appropriated by a dominant group at the expense of the needy). But even if some of this goes wrong we have to take the chance. “When you are in dire straits, being brave is the only option.”  COVID-19 and world trends - The way COVID-19 is playing out in countries like France and Italy is worrisome. Also worrisome is the fact that the US is moving in a nationalist direction. The rise of China is a threat and if the US starts to react to it it will be destabilising.  - The underlying undercurrent, that it simply takes a strong leader to fight the virus, can be disastrous. This can be evidenced by two strongmen leading the US and Brazil, pretending to understand everything, even though what they say is laughable and even though their establishments are messing up right and left. 

You can read the full transcript of the conversation here

You can read key takeaways from another chat Rahul Gandhi had with Raghuram Rajan here

Rahul Gandhi is a member of parliament and former president of the Indian National Congress; Abhijit Banerjee, Nobel laureate in Economics, is a professor at the Massachusetts Institute of Technology.

#Covid19 #machinery #UPA #MGNREGA #Aadhaar #PDS #MSME #PublicDistributionSystem #MicroSmallandMediumEnterprises #GDP #Keynesian #RedZones #demand #supply #inflation #stimulus #timepath #rationcards #Rabi #JanDhan #centralisation #decentralisation #lockdown #NGOs #DistrictMagistrates #Indonesia #caste #Ujjwala #France #Italy #China #US #Brazil #targeting #mistargeting

Image credit - CC BY-SA 4.0 - Sidheeq, CC BY-NC-ND 2.0 - IMF