Former Finance Minister P Chidambaram said the only way to revive the economy, which witnessed the steepest contraction in the quarter ended June, is by boosting consumption.
Consumption accounts for nearly 60% of India's economy and if it falls drastically, a rate cut won't help, he said in an interview with BloombergQuint's Sanjay Pugalia on Rajpath. The first thing, he said, to do is to put money in the hands of people. People need to consume and need money to buy things.
“The government does not have money is a myth. How did the government give a huge bonanza to the corporate sector by cutting the corporate tax rate? Except corporates who demanded that, which economist advised that?” he said. The International Monetary Fund, according to Chidambaram, is willing to loan to the government for pandemic-related activities. “Use it and put in money in the hands of the poor people who have lost incomes.”
India's GDP contracted 24% year-on-year in the April-June period as the lockdown to contain the coronavirus pandemic stalled activities in April and most of May before the nation started easing curbs. That has prompted Nomura, Credit Suisse, Kotak Institutional Equities and Deutsche Bank, among others, to downgrade the nation's growth outlook.
The former finance minister also questioned the steep increase in petrol and diesel prices inflicted upon people in the last 15 months. Every calculation shows that the government must have made huge amount of money by way of an increase in taxes on petrol and diesel and surcharges, he said. “Why don't you use all that money? Not that you don't have money, you don't know how to prioritise the use of the money.”
Monetisation, according to him, is another option for the central government. “It is a power given to the sovereign. Why does the sovereign have that power if you won't exercise it at all?”
In normal times, monetisation is not a good idea. But it can be done if conditions threaten the financial stability in the system, he said. Borrow, spend and transfer money to the poor—that's the way to go about it.
Chidambaram also suggested having a universal relief distribution system rather than targeted. “Once you do a targeting distribution system, there will always be loopholes. Make relief universal, everyone who is eligible is more likely to get it than making it targeted and nobody will be left out that way.”
The government's management of the pandemic, according to him, has been inadequate. “No one is blaming the government for the pandemic, we are blaming them for its mismanagement.”
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