What is Helicopter Money and when and why is it used?
Today, due to Coronavirus, the global economy seems to experience the recession. The biggest reason for this possible recession is the largest number of job cuts globally. Due to this, the purchasing power of the people has decreased, which led to a decrease in demand across the sectors.
Many financial measures can be taken by the government to avoid the inevitable recession in the world. These measures include the fiscal and monetary incentives taken by the government. One of these measures, one monetary measure is called Helicopter Money.
Now let us know about Helicopter Money and how does it improve the economy in this article.
What is Helicopter Money?
The term Helicopter Money was coined by economist Milton Freedman. This means that the Reserve Bank of the country will print the money and transfer it directly to the government so that it can be distributed among the public to fulfil their basic needs.
Helicopter Money is symbolically like pouring money from the sky from a helicopter. The general public was not expecting this money from the government that is why this money is like an unexpected raining of the money from the sky.
The general public will use this money to fulfil their basic demands which will further increase production and employment in the economy.
So Helicopter Money is used with the intention of lifting a struggling economy out of a deep recession or to avoid recession-like situation in the economy.
During the lockdown period, the central government has sent crores of rupees into the Jan Dhan accounts of the beneficiaries.
Telangana Chief Minister KC Rao said that helicopter money can help states to come out of the tough economic time. He said that the Reserve Bank should spend at least 5% of the country's GDP through Quantitative Easing (QE) so that the purchasing power of the people can be increased.
On April 10, 2020; Uttar Pradesh government transferred Rs 1,000 each to the bank accounts of 4,81,755 daily wage laborers, which includes; street vendors and rickshaw pullers. Similar financial assistance of Rs 5000 has been given by Delhi Government to every auto, taxi and e-rickshaw drivers of the state.
About 8 crore beneficiaries of the Ujjwala scheme will receive Rs 5,000 crore to their bank accounts for purchasing LPG cylinders for three months. These examples show that the government has spent money on the people to maintain the demand in the economy.
Is Helicopter money the same as Quantitative Easing?
Under the Helicopter money policy; the reserve bank of the country prints currency notes on a large scale and gives it to the government and the government further transfer it to the people. The central government is not liable to repay the money given under the Helicopter money policy.
Under Quantitative Easing, the central government has to repay the money given by the central bank of the country.
Is Helicopter Money Good for Economy?
The helicopter money increases the supply of rupees in the economy, which led to increasing inflation in the country or reduction in the values of the domestic currency. So increment in the price of the country is the biggest drawback of the helicopter money.
Therefore, Helicopter Money is like a double-edged sword; so the government of India needs to use it carefully.