Rs 7,800 Per Month. The Ideal Cash Transfer Needed To Help Households Survive A Lockdown
The Government of India ideally needs to transfer between Rs 7,800 and Rs 9,600 per month to the median household to help them survive the lockdown, according to an estimate by Tarun Ramadorai, professor of financial economics at the Imperial College Business School, London.
Ramadorai headed the Reserve Bank of India’s Committee on Household Finance in 2017.
His calculations, based on data from the All India Debt and Investment Survey and the Indian Human Development Survey, suggest that the government needs to make cash transfers worth 0.65-1.65 percent of GDP per month to provide support in a scenario where household income has stalled due to the lockdown imposed.
So far, the government has announced a package of Rs 1.7 lakh crore, which is only 0.84 percent of the GDP. As part of the package, the government announced a Rs 500 per month cash transfer to women under the Pradhan Mantri Jan Dhan Yojana.
This amount covers subsistence for only 4 percent of Indian households for three months. That’s only 5 percent of the medium total consumption expenditure, said Ramadorai.
The Math Behind The Rs 7,800-Rs 9,600 Figure
- Looking at the most recent All India Debt and Investment survey of 2012, the median cash in hand, after adjusting for inflation, that households have is Rs 1,675.
- Looking at the inflation-adjusted Indian Human Development Survey, the median monthly consumption in India is Rs 11,277.
“This means that if we take the median monthly consumption expenditure and divide that by cash in hand or in the bank that people have, at the median in India, people can finance only 4.5 days of consumption,” Ramadorai said.
- If we assume that some of that consumption is non-essential and that only 50 percent of that is required for sustenance, we can double the number of days to nine days, that can be sustained using only savings.
People need to understand how much income shutdown people can withstand using liquid savings they have with them.Tarun Ramadorai, Professor of Financial Economics, Imperial College
- Ramadorai goes on to explain that even if India only wants to subsidise subsistence consumption for people, “as per 2020 prices, we are looking at a targeted transfer to all households of about Rs 9,600 a month, if we’re looking to subsidise 80-100 percent of consumption,” he said.
- But if India wanted to subsidise median consumption and only wanted to do this for the bottom 50 percent of households in the country, the country is looking at about Rs 7,800 per household per month for only those households at the 50th percentile or below of income in the country.
This means the total fiscal transfer you’re looking at ranges, depending on which one of these numbers you want to look at, between 0.65 percent of GDP and 1.65 percent of GDP per month. It looks enormous, which it is.Tarun Ramadorai, Professor of Financial Economics, Imperial College
Calling For Synchronised Policymaking
Prime Minister Narendra Modi on March 24 announced a 21-day lockdown, which he later extended to 40 days, now slated to end on May 3. To be sure, the government partially removed the lockdown on April 20 to gradually restart the economy.
In light of the fact that India’s fiscal deficit is already stretched, Ramadorai said that India will have to get creative and use planners to restart activities in certain areas, especially to maintain the basic supply chain.
He, however, cautioned that this planning needs coordination between economists and health policy experts. This is essential to ensure some control on the spread of the Covid-19 virus while trying to restart parts of the economy.
The government recently allowed works under the flagship rural employment guarantee scheme to restart. Many see this as a key vehicle through which employment and income support can be provided.
Ramadorai agrees that the Mahatma Gandhi National Rural Employment Guarantee scheme can be used to target segments of the population that need relief.
“Rather than using the flow of MGNREGA submissions, you can look at the past accumulated stock and past payrolls to identify the vulnerable sections and consolidate the entire number of people who have asked for support and then use that as a way to target the support. It's a good place to start,” he said.
However, administrations must move cautiously and ensure that these work sites don’t become vectors of community transmission, he said.
WATCH | Tarun Ramadorai On Cash Transfers To Mitigate Lockdown Pains