The presentation is to explore the topic Helicopter money an its relevance to COVID -19 disruption in India- how far it will be successful

2. Introduction
CA P V Narayana Rao, FCA CAIIB 2
The presentation is to explore the topic Helicopter money an its
relevance to COVID -19 disruption in India- how far it will be
successful

3. 3CA P V Narayana Rao, FCA CAIIB

4. Helicopter Money
This is a measure of fiscal stimulus.
Helicopter Money/ drop is an expansionary fiscal policy that is financed by
an increase in a economy's money supply.
It could be an increase in spending or a tax cut, but it involves printing large
sums of money and distributing it to the public in order to stimulate the
economy.
It may take the form of Issue of fresh money departing from the standard
practice. ( let us understand the phrase standard practice little later)
Mostly, the term 'helicopter drop' is largely a metaphor for unconventional
measures to jump start the economy during deflationary periods.
4CA P V Narayana Rao, FCA CAIIB

5. It is sudden and a windfall supply of funds made directly
to the spenders to provide stimulus to consumption
which will help production which further helps in demand
for goods and services thus helps in putting the
disrupted economy back on rails. This is generally done
during recession times to provide impetus to economy.
The phrases Helicopter money
Helicopter drop are used inter
changeably.
There is a subtle difference. It
may take the form of fresh note
issue or tax cut which will have
an effect of increasing the
money in the hands of the
spenders
5
CA P V Narayana Rao, FCA CAIIB

6. Helicopter money as a metaphor
We are all aware how Governments and service
organizations try to help public during calamities by
dropping food packets and essentials by dropping
from helicopter which will enable them consume
directly and avoids deaths due to hungry.
Thus helicopter money / helicopter drop may be used during
recession by governments by pumping more currency in to the
hands of direct spenders viz. public deviating from the
regular policy followed by the central Bank of the country
(RBI in our case)
It may be emphasized here that central bank of the country are
entrusted with function of note issue and it is privilege of the
same . RBI presently follows Minimum Reserve system of Rs.
200 crores in Gold Bullion and Foreign currencies ( since 1956)6CA P V Narayana Rao, FCA CAIIB

7. Current scenario 1/2
Let us relate this concept to present situation. Due to
covid 19 the economy of almost all countries of the
world is destroyed due to the twin effect of :
1) Lockdown
2) Additional expenses required to help covid victims
and avoid spread of the same
Once lockdown is removed these countries face
disruption and sluggishness in economic activity
resulting in very low spending by public which has a
spiraling effect of lower production and unemployment
which further worsens the situation.
7
CA P V Narayana Rao, FCA CAIIB

8. Current scenario 2/2
The offshoot of lockdown is lower incomes , lesser money in the
hands of public ,lower spending and fall in demand resulting in
lower productionn and thus a spiraling effect of sluggishness in the
economy would result. Hence, immediate and short term cure like
supply of additional money directly to the spenders (public)
deviating from present policy of note issue.
Some people are arguing that , transfer of funds Jandhan accounts
in a way is equivalent to Helicopter money. But the important
aspect of deviating from current policy of note issue is lacking.
Hence Government may consider increasing the additional supply
of money by deviating from the policy of minimum reserve system8CA P V Narayana Rao, FCA CAIIB

9. Way forward 1/2
Governments of all controls have started planning to
revive economy after Lockdown by resorting to various
measures to revive the ailing economy.
Thy include tax sops attracting foreign investemnts
easing labour laws etc. Uttar Pradesh has already made
announcement in this regard to followed by other sates.
Mumbai, the financial capital of the country is severely
effected by this pandemic and it is critical to revive the
same earliest.
9CA P V Narayana Rao, FCA CAIIB

10. Way forward 2/2
Experts opine that it may take not less than 6 months to
back the economy on track and 12 months restore status
quo
They are also warning that a great depression as in 2008
is also in the offing. Hence Government may consider this
as a one time immediate relief measure to revive the
economy.
However, the success of this policy depends on the
behavior of public who receive such additional funds –
spend or save. A survey conducted by an international
bank few years ago revealed that in times of crisis people
prefer savings to spending which may defeat the intended
purpose 10CA P V Narayana Rao, FCA CAIIB

11. Conclusion
11CA P V Narayana Rao, FCA CAIIB
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