We spent most of 2020 in doom and gloom mode about the economy, courtesy the coronavirus. But it is time to be optimistic again as 2021 could be a mega-boom year for the Indian economy.

Vaccines are being distributed around the world, and Indias own vaccination programme will start soon. Fortunately, India also seems to have stabilised or even declined in terms of daily new cases, at least for now. Meanwhile, the Indian economy is now open to a large extent. Hence, while we still are not out of the woods, theres enough reason to believe things will get better in 2021.

However, in order to truly jumpstart the economy, we still need more stimulus. Our greatest asset is our people and our domestic economy. If we want the economy to bounce back, we need to create massive, immediate consumption. Heres a proposed plan called Protsahan (which means stimulus/encouragement in Hindi) to give Rs 5,000 per person to every Indian, which they must spend within the next 12 months. This could amount to around Rs 20,000 per household. This substantial amount could not only help people tide over the tough times, but also give a massive push to our economy.

But some might say: where do we have this kind of money? What will it do to our deficit position? And will it be worth it? The answers to all these good questions are a resounding yes! We can do this and yes, it will be completely worth it. For this we will need to understand the proposed Protsahan scheme and go through some numbers.

This scheme will enable every Indian with a legitimate ID to get cash vouchers of Rs 5,000, to be spent within the next 12 months. Children under 18 can get half the amount, saving some costs, but for the sake of simplicity, lets keep it the same amount for this article. These Protsahan vouchers can be digital (preferred) or physical (can be issued as special notes with an expiry date). Do note that these should be given to every Indian, as figuring out who needs it more will be a far more cumbersome and time-consuming exercise. The well-off can obviously forgo these vouchers or give them to those who need it more, but they will be offered to everyone.

The vouchers will have an expiry date (say 12 months) and will be divided into two parts. Half the money will have to be spent on travel, tourism, hotels, restaurants or any other hospitality or service-based businesses. The other half will have to be spent on groceries, appliances, clothes or food items. The vouchers will be tradable and exchangeable. This means one can exchange them for cash, though the expiry date on vouchers means they may carry a discount compared to cash. This freedom to let people use themas they want will save a lot of monitoring headaches. Its just money in the hands of people, which has to be spent by them or by someone who they give it to.

Once this money comes back to the economy, it will create a major boost in almost all sectors, but particularly in those sectors that have suffered due to Covid. Jobs will come back. It will, obviously, also be a lot of fun for people as they will have free money in their hands, which they have to spend.

So, whats the catch? Of course, the big question comes: how can we afford this? Lets look at the numbers. For 140 crore people, a Rs 5,000 one-time payment would cost Rs 7 lakh crore. Its a big amount of money. However, to finance this, the government would issue a long-term 30-year bond, paying a tax-free interest of 7% per annum. There are plenty of rich people in India who would like this kind of return and hence invest in this safe yet good-yield instrument. The government can have a separate extraordinary situation borrowing, accounting it separately.

In 30 years, Indias economy would be so huge that the principal of Rs 7 lakh crore wouldnt be much and could be easily repaid. Meanwhile, the financing cost of this bond, at 7% of Rs 7 lakh crore, comes to around Rs 50,000 crore per annum. Yes, this is still significant money, and yes, we are borrowing-to-spend now, but the returns in terms of jump-starting the economy (and the higher tax revenues from it) will far outweigh the additional costs. Do note that even in these Protsahan vouchers, the government will collect GST. That alone will fund the interest payments for the first couple of years.

The government has announced various stimulus packages already for the industry. However, it now needs to stimulate our massive domestic demand. A one-off Protsahan voucher programme with a long-term bond to fund it could go a long way in giving India a roaring economic comeback in 2021. And that would indeed make for a very happy new year!

Read more:

Paying every Indian 5,000 can be the fiscal fix to make 2021 really happy - The Times of India Blog