What If the Govt Freely Distributed 10.15 Lakh Crores?
Helicopter money is a proposed unconventional monetary policy, sometimes suggested as an alternative to quantitative easing when the economy is in a liquidity trap. It is the term used for large sums of new money that is printed and distributed among the public, to stimulate the economy during recession or when interest rate falls to zero.
India is now amid rising corona virus cases which has impacted the economy , our national income as well as the GDP. Citizens of India are facing a lot of crisis in terms of liquidity and minimal income generation.
Methods that can help Indian Economy-
Helicopter Money means extension of non-repayable money transfer from the central bank to the state and central governments, to infuse liquidity in the system. The policy aims at putting more money into the pockets of people to nudge them to spend more money and in turn pick-up economic activity in the country. The direct impact of Helicopter Money is rise in disposable incomes of the people, increase in money supply with an intention to boost demand and inflation in the economy.
In fact, our Telangana Chief Minister K. Chandrashekar Rao has suggested RBI to adopt the concept of Helicopter Money to help state governments tide over the current crisis and kick-start economic activity in India. He had asked the RBI to release 5% funds from GDP as a measure of Quantitative Easing (QE).
Printing more money makes the population richer thereby increasing demand for products, but supply still remains the same and demand increases massively.
Although the original definition of helicopter money describes a situation where central banks distribute cash directly to individuals, more modern use of the term refer to other possibilities, such as granting a universal tax rebate to all households, financed by the central bank.
This method can also lead to decrease in poverty faced by people during this pandemic and can give rise to employment.
No debt for the government as money is not borrowed from someone, instead it’s printed.
Supply remains the same even if the demand increases which in return increases prices of the goods and the economy faces inflation with the risk of hyperinflation.
After some point of time when prices increases at lofty, the respective country will start losing its currency value.
This way of providing money to central bank can also lead to greediness as it is said that, “Eating a lot does not satisfy greediness” which explains that citizens will not be satisfied even if more than enough is provided to them.
Legal complexities can arise if the scheme is seen as the RBI financing an obligation of the public sector as well as the third parties, violating the prohibition of monetary financing. However, this refers to a very unlikely and undesirable case where helicopter money payments by the central bank would substitute to welfare payments (which are a liability of the governments).
Thus, I can say that this concept has two different sides that can boost as well as destroy the economy . Looking towards the increasing Corona Virus cases, our economy has been affected badly as businesses are yet to pick the pace. If required, the government should apply or revise the concept of Helicopter or "FREE MONEY" as it is often called.