Stimulus packages: Panagariya cautions Modi govt about going overboard
India should take ‘measured approach’ with stimulus packages to deal with COVID-19 by limiting interventions to the provision of food, shelter and basic necessities of life for all; forbearance on payments of outstanding loans; and extra provision of working capital including what will be necessary to cover outstanding wages from lockdown period to enterprises.
India should resist calls for mega relief and stimulus packages that pitch for generous availability of credit to even unviable businesses and focus on a more “measured approach” by limiting interventions to provision for working capital and ensuring basic necessities for all to deal with the impact of the COVID-19, eminent economist Arvind Panagariya has said.
The former NITI Aayog Vice Chairman said that India, like nearly all other countries in the world, faced “difficult choices” against the COVID-19 pandemic.
“So far, India has walked the tight rope as well as it could have, given its resources and management capabilities,” Panagariya told PTI.
Elaborating on the path ahead for India as it navigates health and economic concerns in the wake of the COVID-19 pandemic, Panagariya said there have been calls for mega relief and stimulus packages from various quarters.
“The scale of some of these packages is so large as to give some sections living standards that exceed what they enjoyed prior to the advent of the coronavirus on Indian soil.
“These packages also pitch for such generous availability of credit that businesses that would be unviable in normal times would get a long lifeline in the post-corona world,” said the professor of Economics at Columbia University and director, Raj Center at Columbia’s School of International and Public Affairs.
He emphasised that the Indian government “needs to resist those calls and take a more measured approach” by limiting interventions to the provision of food, shelter and basic necessities of life for all; forbearance on payments of outstanding loans; and extra provision of working capital including what will be necessary to cover outstanding wages from lockdown period to enterprises.”
Panagariya noted that future taxpayers will have to pay for the expenditures the government incurs today by either borrowing or printing money.
“Printing vast volumes of money may not lead to high inflation immediately because many items of expenditure are simply not available. But we shall not escape such fate once the situation normalises and trillions of rupees worth of extra money in the hands of public converts into effective demand,” he said.
Finance Minister Nirmala Sitharaman on Friday said India will soon announce fresh relief measures and economic stimulus to help the poor and industry fight the impact of the COVID-19 pandemic.
Participating in the 101st meeting of the Development Committee Plenary of the World Bank through video conference, Sitharaman also assured the global community that India would continue to supply critical medicines to needy countries for the treatment of COVID-19 patients.
Sharing details of welfare measures announced by the government last month, the finance minister said support measures worth $23 billion (Rs 1.70 lakh crore) were provided, comprising free health insurance to health workers; cash transfers, free food and gas distribution; and social security measures for affected workers.
According to estimates by the Ministry of Health and Family Welfare, there are 12,289 active coronavirus cases in the country as of April 18 and 488 people have died due to the virus.
Panagariya said that it will be a “miracle” if a vaccine can be discovered, licensed, manufactured and made available to 65 per cent or more of India’s population in less than one and a half years, underlining the absolute necessity of ensuring that the infection curve remains flat till the time a vaccine is available.
“The economy cannot be kept in lockdown for that long. At the same time, left to itself, with its ability to spread at lightning speed and the high kill rate,” he said, adding that the novel coronavirus can quickly overwhelm the health system.
“Therefore, until a vaccine is available, corona curve must be kept sufficiently flat that the health system can handle the additional emergencies without being crippled. That requires restricting economic activity,” he said, adding that such a scenario presents the “dilemma and tight walk for the government.”
The former NITI Aayog Vice Chairman said in the world’s largest and most diverse country “some hiccups” such as coming out of hordes of migrants at a few spots are “inevitable” as India tries to manage the COVID-19 crisis.
“Moreover, these are amply balanced by numerous unexpected positive surprises such as ability of local administrations to do contact tracing and enforcing strict lockdown such as those observed in Bhilwara in Rajasthan and Sangli in Maharashtra,” he said.
Globally, 160,721 people have died and over 2.3 million people have been infected by the coronavirus, according to data maintained by Johns Hopkins University.
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