Given unprecedented inflation in advanced economies, one has to question their policy choices through the pandemic. While the shock to energy and food prices from the European war is a proximate cause, excessive fiscal stimulus during 2020 had fragilized these countries.
For example, UK could soon see inflation north of 20%. These levels are unheard of, last seen many decades ago. This will deal a severe blow to real disposable incomes and household savings.
What must be noted and remembered is most of the “policy experts” and economists were building pressure for Bharat to follow the same playbook in 2020: go for a huge fiscal stimulus, even as the country went into a total lockdown. Slam brakes and accelerator simultaneously! But the Government’s strategy always was: Wait, watch and then respond…rather than getting carried away in the moment thus taking hasty, irreversible and damaging decisions. We must applaud – @nsitharaman @sanjeevsanyal @SubramanianKri @FinMinIndia
Let’s start with freshly minted Nobel laureate, Abhijit Banerjee: “I’m not sure the government is calling it right. Is it possible to spend an extra 2% of GDP on this right now? Probably – many countries have borrowed 10 times that amount, so why not?”
In a chat with Rahul Gandhi, Abhijit Banerjee “urged the Indian government to take a clue from the US, where the Trump administration has announced a stimulus package equivalent to around 10% of the country’s GDP.” [May 2020].
“We really haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP.” That was Abhijit Banerjee in discussion with Rahul Gandhi in May 2020.
Here is Raghuram Rajan: “Spend what you need, spend what it takes” [April 2020]. “Government’s plan plan to conserve resources for a future stimulus is self-defeating” [September 2020].
Arvind Subramanian too was part of this loud chorus. While not nearly in the same ‘academic league’ as Banerjee and Rajan, he too aped Rajan and said “err more on the side of prioritising the present” [May 2020] and spend 5% of GDP.
The mainstream business press too would not relent. Here is the @Mint_Opinion editorial from March 29 2020, not even 2 weeks into the first lock down: It’s time to go for broke with a ₹10 trillion plan. The editorial went on: “This would be a gamble, no doubt, as inflation could prove costly later. But the odds of India’s success will only lengthen as more time is lost. Whatever has to be done must be done fast.”
Despite the intense pressure from the media and intelligentsia, the Government stuck to its strategy of taking a responsible, calibrated approach. We are where we are today because of that care, and yes, lonely, approach! Huge props to PM @narendramodi, FM @nsitharaman, and the team! India’s response prioritized relief to those who needed it most – we did not slam the accelerators and brakes together, but secured the needy sections of society through food provisions, cash transfers, stabilized MSMEs by credit and liquidity extension.
Contrary to the prevailing consensus – spend, spend, spend! – FM @nsitharaman said in September 2020: “Open to further stimulus…every time we have announced one, it has been after much deliberation and aimed at specific sections.” @sanjeevsanyal said, “government recognizes the need for further stimulus at an appropriate time to perk up demand in the economy”. [October 2020]
Note the emphasis on calibration, timing, and modulation. All of this was lost on the supposed global experts.
“Unconditional cash transfers wasteful, targeted credit works better”, said then-CEA @SubramanianKri. Scams have surfaced – on the order of $100 BILLION – in Western countries which gave free-for-all pandemic doles.
Bharat tied its economic responses to vaccine rollout [July 2020]. @sanjeevsanyal describes it as an “Agile” approach – ‘Agile approach, key to India’s economic response to the Covid-19 shock’ [February 2022].
Here is another ‘expert’ who tried to push Bharat to adopt the inflation-stoking, scam-ridden strategy of Western countries. ‘India needs large fiscal stimulus’, says Kaushik Basu. He served as CEA during UPA Govt – a similar era of high inflation and scams.
There were voices of reason, wisdom and temperance. @APanagariya had said in April 2020: The Government “needs to resist those calls [for large stimulus] and take a more measured approach”. He has proved to be spot on!
“Many in the west believe that spending will save the economy in the wake of Covid-19. Arvind Panagariya argues debt must be kept under control if economies are to survive the crisis, and that India is showing early signs of getting it right.” [July 2020].
Another such bold voice was that of @LHSummers, who blasted the $1.9T US stimulus as “the least responsible economic policy in 40 years”. Summers too has proved to be prescient and correct.
While the intellectual-media complex doesn’t impose consequences upon history sheeter ‘experts’, we should remember who said what, and be careful of future prognostications and suggestions made by individuals who would be quickly discredited had they been in any other field.
It is also notable that some of these worthies are now openly participating in political forums. To sum it up, credit is due to the Government of Bharat for its responsible and smart handling of the economic fallout of the Covid pandemic. Bharat is in good hands!
But the commentariat wants to deny Bharat’s leadership the great credit due to it. The too-clever-by-half Ruchir Sharma photoshopped out India from an FT piece even as he noted “pandemic stimulus has backfired in emerging nations.”
“There is no free lunch. If you are going to monetise (the deficit), that will have some impact on macro fundamentals… We cannot pretend to do policy as if there are no costs.” – @SubramanianKri in May 2020! First principles thinking when in crisis!.
@dravirmani published a superb paper on Lockdown Economics in the early months of the pandemic [May 2020]. This is what sagacity and prescience looks like
@surjitbhalla noted that Bharat has not only structured its stimulus response correctly, it had gone a step further by using the crisis to implement important economic reforms [June 2020].
@TheJaggi summarized Bharat’s response in an excellent October 2021 column for @SwarajyaMag: “Common sense economics often trumps expert advice, especially when that advice comes from experts with a bias against the Modi government.”
The lesson for us is: weigh and grade carefully who had said what in the hour of grave crisis. Choices have consequences. ‘Experts’ should be held accountable for the views, policies and ideas that they propagate.
(This article has been compiled from the tweet thread originally tweeted by Rajeev Mantri – @RMantri on Sep 2,2022 with minor edits to conform to HinduPost style-guide and improve readability)
