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Print money to handle this once-in-a-century crisis: Swaminathan Aiyar

"Our stimulus effort makes us look like pygmies compared with the rest of the world."

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Last Updated: Mar 28, 2020, 12.40 PM IST
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Aiyer
I am having no quarrel with the direction of what the government is doing; yes you do need to focus on the needy, you do need to get more out for them.
Tamanna Inamdar: Let us focus on how India’s response has been so far. Is it a fair assessment that on the medical side, we have been good, we have been ahead of the curve, locking down, and now, the challenge really is to deal with the economic fallout of that necessary decision?
If you see, the US has had a stimulus package, a relief package of $2 trillion, which is 10 per cent of GDP. Our Indian fiscal package, which Nirmala Sitharaman produced, is said to be only $1.7 trillion, of which many of the items like NREGA, various other things were ongoing. The actual thing may be not more than 0.5 per cent of GDP. Now, where is the resemblance between a country putting 10 per cent of GDP and India putting only 0.5-0.8 per cent of GDP, almost 120th. People can say, this is just a few crumbs from the Finance Minister’s stable. People can say that this is outrageously inefficient. People can say this is spineless financial orthodoxy.

Americans have thrown away financial orthodoxy and they do not have a socialist president by any means. Mr Trump is a man who has been expressing all kinds of skepticism, in fact, peeved about the coronavirus. Even in that country, they have gone ahead with a relief package, which is 10 per cent of GDP. Why are we not anywhere near that? Even during the 2008 recession, the US did not send cheques to individuals. Right now, it is sending them to all individuals earning less than $100 a year. What are we doing on Jan Dhan accounts? Rs 500 per family per month. It is pathetic. It is so small. On every single thing, I would say double it or triple it. If you take the example of the US, which is anything but a socialist economy, if they can go out of its way to do so much more for its own people, why are we doing so less?

I am having no quarrel with the direction of what the government is doing; yes you do need to focus on the needy, you do need to get more out for them.

The Reserve Bank of India does need to have more forbearance as far as lending on the banking system; the interest rate cut is done. Many of these things that it has done are similar to what the rest of the world has done. I am merely saying the scale of our effort makes us look like pygmies compared with what the US is doing, and I do not understand why. At this point, you should not be afraid of increasing the fiscal deficit several times. I would say just print money. In other words, the government should have extra borrowing, financed entirely by the Reserve Bank of India printing money. This will be a once and for all a huge explosion of the fiscal deficit, so be it.

You are dealing with an extraordinary once-in-a-century event. So let us have high fiscal deficit once in a century financed entirely by RBI and let us not worry about the inflationary consequences, or what foreigners say about it. We need to respond in not only in the right direction but on a much bigger scale.

Tamanna Inamdar: The medical aspect is very important, and people are flocking to their villages. Now we needed this lockdown so that the virus is not transmitted. We may already be in Stage-3, what happens if this reaches the remote parts of the country? What is your take on this very big fear that Dr Parker is talking about, and it is an alarming statement. He fears that more people may die of hunger than of Covid-19?
This is a point I raised earlier in a recent column. This is a problem that is going to grow as the days go by. On all that we have done, we have said that we are going to have a lockdown more less on all economic activity for 21 days. It is a huge hit on GDP, a huge hit on incomes to what people can do. But it does not stop there. We are going to get into a very major recession. The world is going to get into a very major recession.

If the virus just blows over in one quarter, you might bounce back. If you do not, and there is something prolonged, then you would have enormous distress for six to eight months. Where is the money to sustain all that? Secondly, in other countries there is the possibility of detecting the thing, isolating people. Can we follow that path? In India in the crowded bazaars, where people are going, is social distancing or staying six feet away really possible? Given our customs, is this going to work?

I have a strong feeling that this is not going to work. I have a terrible feeling that we are going to get to the stage where everybody would have to get infected until we get to something called herd immunity, when a sufficiently large number of people have got that particular virus and the community as a whole develops immunity. That is when this thing will die out.

If you look at what some of the experts are saying about herd immunity, different models say maybe 50-55% of the population will have to get infected before we get herd immunity. That means 700 million people may have to get infected in India. And of that 700 million, if the death rate is 0.1 per cent, that is still 7,00,000 deaths. So yes, there is a danger that hunger will kill more people than what the virus itself is going to do.

If the government is actually good in giving out this additional amount of 5 kg of food free and already existing food is like Rs 1-2 per kilo for families in most parts of the country, just the basic food may be available, but the distress will be immense.

This is why on the one hand I worry that when just for 21 days, you have seen so much havoc, will we actually have a positive result at the end of it? Will we still find this thing continuing at the end of it? Or will it spread and spread, until perhaps half the population is infected and finally we achieve, what is called her immunity. So we are looking into the abyss, we do not know what is going to happen. In the best scenario, everything will blow over in one quarter. In a darker scenario, when you begin to look and this continues for three months, six months, eight months, then we are looking at a tragedy that we have never thought of before.
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