‘Coronavirus was a wasted crisis for India’s economy,’ says Abhijit Banerjee, flags demand shock

Nobel laureate Abhijit Banerjee on Thursday said that the coronavirus pandemic turned out to be a “wasted crisis” for the Indian economy, suggesting that there was scope for a more significant fiscal push from the government. He was speaking at the Hindustan Times Leadership Summit.

“This was the time to do radical things like sell off banks to some foreign bank...in those terms it was a wasted crisis,” Banerjee said, while replying to a question on the government’s macroeconomic policies during the pandemic.

The 2019 Nobel recipient for Economics said he was not sure of how quickly the Indian economy might recover, and added that the country was reeling from a “demand shock” in the aftermath of Covid-19. “One of the reasons [of economic slowdown] is a massive demand shock...the investment is very slow,” he said. “Domestic economy is not giving much reward, so people are sitting on their money. We need a demand bounce.”

Noting that even the lesser than expected contraction in India’s growth rate in the second quarter was a “slow bounce”, Banerjee asserted that the people of the country need to feel that a recovery was possible, in order to provide a fillip to the demand. “People are scared of going out...of migrating, so there is a lot of stickiness,” he said. “We need a boom to overcome that.”

He also noted that the government’s reluctance to provide a larger fiscal stimulus amid the pandemic was because of the fact that it prioritised bailing out banks instead. “The public policy primarily focused that banks do not collapse because they were already on shaky grounds, so the loans were rescheduled,” he explained.

On farmers’ protest

On the topic of the ongoing protests against the agriculture laws, Banerjee said that the farmers were essentially acting out of suspicion of the government’s motive. “What they are saying is not that the reforms could not be good,” he noted. “They are saying that this is the thin end of the wedge...That something else, much worse, is about to happen.”

Responding to a separate question, Banerjee said that the role of the state government of Haryana could be crucial in resolving the deadlock, as the Bharatiya Janata Party is in power in the state and on the other hand, many of the Cabinet ministers come from farmer backgrounds.

Farmers, mostly from Punjab and Haryana, have been camping along Delhi’s borders for 15 days now, saying they won’t leave until the government rolls back what they called the “black laws”. Union Agriculture Minister Narendra Singh Tomar on Thursday said the Centre was ready to address the farmers’ concerns about the new agricultural laws, and reiterated that the minimum support price will not be affected. But the Centre has not agreed to repeal the laws.

On federalism

Banerjee, who is also a professor at the Massachusetts Institute of Technology linked the lack of trust on the government among farmers to the weakening of federalism in India.

Suggesting that the size of Lok Sabha or Assembly constituencies in India are bigger than they should be, he said that there exists a general mistrust in the country’s system, as the decisions are made in a “top-down approach”.

“When you have people who are very far away, who have very little connection and are making very large legislations...so this is less about the State and more about the general relation of the State with the people,” he said.

On coronavirus

Banerjee added that there was no guarantee that the coronavirus pandemic was over. “It’s clear that measured rate is going down, but there is no coherent explanation as to why it is going down,” he said. “So we have no basis to assume that we are out of the pandemic.”

On the topic of vaccines in the Indian context, Banerjee asserted that the country would need two quarters to estimate how to vaccinate 1.4 billion people

India has so far recorded 97,67,371 cases and 1,41,772 deaths, while more than 92.5 lakh people have recovered. Globally, the coronavirus has infected more than 6.88 crore people and killed over 15.68 lakh. Over 4.43 crore people have recovered from the infection.

On migrant crisis

The Nobel laureate said that the crisis of migrant labours and their loss of employment during the coronavirus-induced lockdown was a problem that was always known to the system, as there was no data available on them.

The sudden lockdown announced by Prime Minister Narendra Modi on March 25 had triggered an exodus of migrant workers, who were left without jobs in big cities. Stranded in big cities without work, hundreds of thousands of them then began long journeys to home on foot, sometimes over distances of more than 1,000 km. Some died on the way due to illness and exhaustion, while others died in road accidents. The government started over 300 “Shramik” special trains on May 1 to help the workers get home, as it faced criticism from the Opposition.

In September, the Centre told the Parliament that it had no data available on the number of deaths of migrant workers. The Centre’s response contrasted with the data provided by the Railway Protection Force reviewed by the Hindustan Times in May. The data showed that nearly 80 migrant workers died of starvation or heat sickness while travelling on special trains between May 9 and May 27. The Railway Protection Force is a security force under the authority of the Ministry of Railways.

“There is no survey on how many people from Arrah in Bihar are working in Surat in Gujarat,” Banerjee said, adding that the lack of data meant that while labour in India got integrated across the country, their social security remained based on domicile.

He added that the poor state of urban housing in the country was also a reason for the crisis. “People earning Rs 400-500 a day in, say, Mumbai, do not have a place to stay...so they are probably staying at the construction site they are working at,” Banerjee said. “As a result, someone who should have stayed in Mumbai for three years, is coming back in three months and so there is no continuity of labour.”

Banerjee, Esther Duflo – who are married to each other – and Michael Kremer won the 2019 Nobel Prize for economics in October last year. They won it “for their experimental approach to alleviating global poverty”, using a method called Randomised Control Trials.