India needs a bigger stimulus package and money should be put in the hands of people in the form of cash grants to create demand even if some part of it is siphoned off, Nobel Laureate Abhijit Banerjee said in a video interaction with Congress leader Rahul Gandhi. Banerjee said state governments should be co-opted along with NGOs to get this money to the people who really need it. Banerjee said in the interaction that cash transfers must go beyond the poorest of the poor.

Economist and former RBI Governor, Raghuram Rajan had a similar interaction with Gandhi last week.

Gandhi noted that many small and medium businesses hit by the COVID-19 lockdown could "go bankrupt" because of the shock. This, he said, would result in job losses.

"That's the reason a lot of us have been saying that we need a stimulus package," the economist agreed.

"That's what the US is doing, Japan is doing, Europe is doing. We really haven't decided on a large enough stimulus package. We are still talking about 1 per cent of GDP. United States has gone for 10 per cent of GDP."

India should take a cue from the US by pumping in more money in the hands of the people to revive demand, Banerjee said.

"Giving money in the hands of everybody, so that they can buy in stores or consumer goods."

Banerjee said the beneficiaries must be among the poorest, but it was important to decide what criteria to target.

"I would say bottom 60 per cent of the population, we give them some money, nothing bad will happen in my view," said the economist.

"The sooner you come out of the lockdown of course depends on the disease. You don't want to take down the lockdown when a lot of people are getting sick. We have to kind of be aware of the time path of the disease," he added.

The Congress MP raised the scale of the food problem and how it was not reaching people because of ration cards. Banerjee said temporary ration cards should be handed out to anybody who wants one.

"In fact, put other ration cards in abeyance, just give temporary ration cards. Anybody who wants one, get a temporary ration card. They last three months for now and maybe renewed for another 3 months if necessary, and honour that. Give everyone a ration card, anyone who walks in give them one. And use that as a basis for making transfers. I think we have enough stocks," he said.

On the crisis of migrants stranded by the lockdown and desperate to reach home with no jobs, shelter or food, both agreed the matter could have been handled better and there was need for a decentralised system where the movement of migrant labour should have been handled by the centre.

Banerjee cited the case of Indonesia and commended it to India. he said: “Indonesia has decided that it is going to give out cash transfers and it is going to give it out entirely through a community decision making process. So, the community will decide who are the people who are needy and choose them for the transfers. We have worked with the Indonesian government exactly on this issue, and we realised that it doesn’t do any worse than centralised targeting. You don’t get captured by special interest or anything. What you get is that people make judgments about what is appropriate in a much more locally nuanced way. I think that is an experience you could learn from.”