Helicopter Money - Is this the Solution of the current crises?

Hello and greetings of the day friends!

First of all a big shout out to all of you for making through this tough time with plenty of aplomb and keeping your morale high through series of lockdowns. As this situation has been unprecedented for possibly even all three generations that co-exist in any given household, the measures that have been employed by the government have been on a stricter and safer side. The chicken and egg question of whether the economy comes first or whether human life is more important has been decided for us in India, by the decision-makers by preferring the second choice. Obviously the economy has taken a hit and now with slowly releasing various stages of lockdown means we will get to see a real picture emerging with businesses, business owners and even professionals who are affected by it.

So, today we are going talk about “Helicopter Money” which is a likely scenario of plenty of households with different packages being announced by the government to support the spending in the market and the consumption by the customers. So, what is exactly ‘Helicopter Money?”

Helicopter money according to technical definition is “New money printed and distributed amongst the public to stimulate the economy during a recession or when interest rates fall to zero.” Milton Friedman, a famous American economist and a Nobel Laureate coined this phrase long back in 1969. Although the original idea of helicopter money describes central banks making payments directly to individuals, economists have used the term 'helicopter money' to refer to a wide range of different policy ideas.

Currently the Post-Covid 19 stimulant schemes introduced by Indian Government are such “Helicopter Money” schemes, primarily to introduce stimulus in markets by making cash available for demand and consumption of the end-users. The Government had to resort to an initial Rs 1.7 lakhs crore relief package which included direct transfer to the poor. So, is it beneficial to us as common man when we think of these benefits?

Typically, there are three pillars on which any national economy runs: (a) Liquidity – This will be helped with the packages announced by Indian government. Although most is through financing, but the market liquidity should benefit. (b) Consumption - Putting more money in the hands of the poor should ideally result in additional consumption. The other side of equation is though; most of this consumption would be focused on survival and related products and services. During this time of Covid 19, possible layoffs, if not then expected cuts in salary and overall uncertainty for everyone affected, not likely to happen. (c) Investment - As companies are not likely to invest now looking at the lockdown post Covid19, the Government would have to do the heavy lifting. Further, looking at the global news that nations across the world wanting to divest out of China, obviously government wants to make India an attractive manufacturing destination.

Though, Helicopter money like stimulus normally causes inflation, it is not likely to happen in India in current scenario. Reality in India though, that survival is needed and demand for nonessentials is at its nadir. Many individuals are postponing or in certain cases permanently canceling their discretionary spending budgets. Though, another effect of Helicopter stimulus is also devaluation of the currency. This ideally should have a positive effect on exports.

If this is implemented efficiently by government as well as educating and enabling the people who are going to actually spend it, it could results in transformation for Make in India as well. Recent speech by Prime Minister Narendra Modi calling out us all to become “Aatma-Nirbhar” (or self-dependent) can also add some fuel to this fire.

Finally, let’s talk about a story through which we all as Indian citizens can take a message and make sure “India Shining” becomes a reality. Here goes the story:

A king and his troops were going through a forest. The King saw an old man cutting trees. Taking pity on him, he asked the Minister to give that old man an acre of sandalwood trees. The Minister took care of that instantly.

A couple of years later, the King and his troops were again passing through the forest and in fact, they were passing by the area where there were sandalwood trees given away to that old man.

The king noticed that most of the sandalwood trees were gone and in one corner the old man was there. He was burning a couple of sandalwood trees. Upon talking to him, the Minister found out that he was burning those trees to collect coal BECAUSE that is what does – sells coal and makes money.

The true value of sandalwood was not utilized at all by the old man and it was a simple question of awareness.

To us all as Indians, the question is:

Are we going to burn these “sandalwood trees” or are we going to be unlocking the real value?