NEW DELHI: Former RBI Governor and economist Raghuram Rajan on Sunday said that India should now plan a way forward and think of boosting economic activities once the virus is controlled.
In a blog titled ‘Perhaps India’s Greatest Challenge in Recent Times’, Rajan stated that economically, India is facing the ‘greatest emergency’ since Independence.
“The global financial crisis in 2008-09 was a massive demand shock, but our workers could still go to work, our firms were coming off years of strong growth, our financial system was largely sound, and our government finances were healthy. None of this is true today as we fight the coronavirus pandemic,” Rajan, who completed his three-year term at the Reserve Bank of India (RBI) in 2016, noted.
“We should now plan for what happens after the lockdown, if the virus is not defeated. It will be hard to lock down the country entirely for much longer periods, so we should also be thinking of how we can restart certain activities in certain low-infection regions with adequate precautions,” he added.
The economist also suggested possible measures to fight the expected economic crisis.
Healthy youngsters, lodged with appropriate distancing in hostels near the workplace, may be the ideal workers for restarting such activities, Rajan pointed out.
“Since manufacturers need to activate their entire supply chain to produce, they should be encouraged to plan on how the entire chain will reopen. The administrative structure to approve these plans and facilitate movement for those approved should be effective and quick – it needs to be thought through now,” he wrote.
Rajan, a professor of finance, University of Chicago Booth School of Business said, “Direct transfers to households may reach most but not all, as a number of commentators have pointed out. Furthermore, the quantum of transfers seems inadequate to see a household through a month… We have already seen one consequence of not doing so – the movement of migrant labour. Another will be people defying the lockdown to get back to work if they cannot survive otherwise.”
Limited fiscal resource
Observing that India’s limited fiscal resources are certainly a worry, Rajan, however, said, “Spending on the needy at this time is a high-priority use of resources, the right thing to do as a humane nation, as well as a contributor to the fight against the virus.”
“This does not mean that we can ignore our budgetary constraints, especially given that our revenues will also be severely affected this year.”
He concluded his blog by saying it is said that India reforms only in crisis.
“Hopefully, this otherwise unmitigated tragedy will help us see how weakened we have become as a society, and will focus our politics on the critical economic and healthcare reforms we sorely need,” Rajan said.