One of India’s well-known and highly regarded economists has said the government’s refusal to provide income support to the unemployed and poor and instead asking them to take government guaranteed loans which the Chief Economic Advisor has said they can default upon, is a “a terrible terrible mistake”.This move, in the government’s recently announced a Rs 6.28 lakh crore package, says Professor Jayati Ghosh, is morally and economically wrong.In a 35-minute interview to Karan Thapar for The Wire, Professor Ghosh, who is at present Professor of Economics at the University of Massachusetts at Amherst, USA and was previously Professor of Economics at JNU, says over the last 16 months of the pandemic the government’s handling of the economic crisis has been cruel and incompetent. “I expected more to help the poor to survive,” she says.In the interview there’s a long discussion on the strategy to help the unemployed and poor, explained by the Chief Economic Advisor, Krishnamurthy Subramanian, in an op-ed article in the Times of India on June 30, where he argues that rather than create an urban MGNREGA scheme for the urban poor and unemployed it’s better to advise them to accept government guaranteed loans from micro finance institutions which, additionally, he adds, they can readily default upon.This is what he wrote in the article: “When a loan is given by (an) MFI and fully guaranteed by the government, this scheme serves as a quasi-cash transfer targeted to the genuinely distressed…This category of borrowers will avail the loan and default on it.”Ghosh says its morally wrong to ask the poor and unemployed to accept loans and then dishonour them. She also says this is completely contrary to the experience of Bangladesh’s famous Grameen Bank and India’s own MFIs who have succeeded because they can rely on the poor to honour their debts. To now tell the poor to dishonour their debts and default is both morally wrong and contrary to the experience of India’s micro finance institutions.On the other hand, it’s the rich like Vijay Mallya, Nirav Modi, and Mehul Choksi who take loans and default.Speaking about the present state of the economy, at a time when the daily increase of cases is around 40,000 and lockdown restrictions are largely lifted, the professor says its “extremely dire”. She explains that even before the pandemic the economy was in “a weak condition”. It was then “massively battered by the first lockdown”. But the economy was not given the capacity to recover by any of the steps the government took at that time. Consequently, before the second wave hit, people were already “enervated and weakened”. Thereafter the second wave proved “disastrous” in its impact.Speaking about the Rs 6.28 lakh crore package announced by the Union finance minister last week, Ghosh says, “It’s just a number and it’s a non-existent one”. She adds, “No other government would dare to call this a package” and that it contains “no fiscal stimulus”. Ghosh pointed out that the world over, countries have given levels of fiscal stimulus somewhere between 10% and 30% of their GDPs. The United States has given upto $25,000 per capita. In comparison, India’s additional spending is only about 2% more than the earlier budget, if you account for inflation.Ghosh said if she was in Krishnamurthy Subramanian’s position and advising the Finance Minister she would have suggested six specific measures. First, immediate compensation of Rs 7-7,500 per month as income support for three months. Second, an immediate expansion and universalisation of food distribution for every adult, not limited to food grain but inclusive of pulses and cooking oil. Third, a massive expansion of MGNREGA. Fourth, an urban MGNREGA. Fifth, doubling health expenditure. Sixth, a universal pension equal to half of the minimum wage.Asked how much this would cost and how it should be paid for, Ghosh said back-of-envelope calculations suggest it would cost between 5.5% and 6% of GDP as additional money. She said 2% would come back as revenue from taxes. That would mean the government would have to borrow possibly up to 4% of GDP. This, she said, should be done by asking the RBI to directly finance the deficit i.e. monetisation.Watch the full interview here.
