Home / News / India /  Central govt weighs cash transfer option to offset pandemic impact

NEW DELHI : The Centre may weigh the option of a cash transfer scheme to mitigate the impact of the economic fallout caused by the Covid-19 pandemic, said at least two government officials familiar with the development, requesting anonymity.

The scheme could cover the poor and those who have been affected the most by Covid-19, and could be along the lines of a universal basic income (UBI) scheme, depending on the eventual cash outgo, said the first person. The scheme is being discussed at the highest echelons in the Prime Minister’s Office and the finance ministry, he added.

The government will have to overlook the fiscal slippage such a scheme could cause, since the Covid-19 impact is likely to be unprecedented and vast. “India needs a well coordinated fiscal and monetary response to counter the coronavirus-induced disruption to our economy. This is not a time to worry about fiscal slippage," said Shamika Ravi, director, research, Brookings India.

These steps must be considered to stem the long-term decline in economic activity, she said, adding that the declining oil prices should give the country a little breather.

"Union government should immediately direct state government to identify all self employed people connected with travel and tourism, hospitality, retail and other services which are likely to be affected and collect details like Aadhar, voter ID, mobile number, place of work needed for direct cash transfer," said Arvind Virmani, former chief economic advisor and former ED, International Monetary Fund.

The chief minister Yogi Adityanath-led Uttar Pradesh government on Tuesday announced a scheme to compensate the poor and daily wage earners for livelihood loss caused by Covid-19. The state has formed a three-member committee, headed by the finance minister, to suggest ways to implement the scheme.

“The Uttar Pradesh government’s scheme has come at a critical time. The Centre will study the scheme to see if a similar plan can be implemented to provide a safety net for the poor, vulnerable and informal sector workers at the national level," a second official said. The fiscal impact will be a big consideration while deciding to whom the scheme should be extended to, he added.

Any plan will need to identify the sectors that need immediate support, said Charan Singh, chief executive officer, EGROW Foundation, and former RBI chair professor at IIM Bangalore. “These would be travel, tourism, hospitality and infrastructure, and the banks having exposure to these industries." A scheme would need to factor in their suffering and give them more time for tax payments, as well as concessions. “With widespread shutdowns, income levels of individuals can suffer, so bank instalments will suffer. Thus, banks will have to be accommodative and demonstrate patience," Singh added.

Even as the government in India debates the possibility of handing out cash transfers, developed countries, such as the US, the UK, the Netherlands and Canada, have taken fiscal steps to mitigate the impact on their economies.

Central banks in many countries, including the US, South Korea and New Zealand, have announced deep cuts in interest rates to make borrowing cheaper. The US government has announced more than $1 trillion boost in fiscal measures, including an initial $250 billion package that will send cheques directly to people, like with UBI.

It has also extended tax payment deadlines by 90 days. All this, in addition to the $700-billion monetary easing announced by the US Federal Reserve on Sunday, when it cut lending rates to zero.

Reuters quoted Canadian prime minister Justin Trudeau saying that his government would provide income support to “millions of Canadians". The UK government also unveiled a $400-billion stimulus package of loans for businesses hit by the virus outbreak.

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