Bihar’s pre-poll handouts were part of a political pattern in India. So what do cash transfers mean for price stability, welfare outcomes and fiscal management? Conditional cash transfers are found to work, but a universal basic income (UBI) deserves consideration too.
What happens when a helicopter drops a large amount of cash on a local economy? Does the local GDP go up instantly? Of course not. Even a schoolkid’s intuition tells you that the immediate result would be inflation. It is more money chasing the same amount of goods and services.
Such a ‘helicopter drop’ of cash fresh off the printing press is used as an unconventional and last-resort tool for a situation of extreme economic distress, such as a deep recession or liquidity trap. It is used after conventional monetary solutions like lowering interest rates to zero or making bond purchases have failed.
Read the full article here. The article was originally published in Live Mint.