India’s GDP Growth Rate May Turn Negative In Q1 FY21, C Rangarajan Says

India’s GDP growth rate may slip into negative territory in the first quarter of 2020-21 but can recover to 3.5 percent if the uncertainty caused by the coronavirus lockdown eases in the remaining three quarters of the fiscal.

That’s according to former RBI Governor C Rangarajan, who believes that the lockdown extension, announced by Prime MInister Narendra Modi on Tuesday, should have included plans to address the issues of migrant workers and daily wagers.

"The most important thing is that the hardship of the lockdown is being borne very severely by the vulnerable sections,” Rangarajan said on Wednesday.

Because of the closure of the factories, the daily wage earner, including the migrant worker, has been severely affected, he said. "Therefore, if the lockdown is absolutely essential, then I think something must be done to take care of these people who have been thrown out of employment.”

"And therefore, this (lockdown extension) announcement should've been accompanied by an announcement regarding what and how they will take care of these people...immediately in his (Modi) speech or elsewhere we should have seen.

“Even today in the relaxation norms, along with it perhaps some announcements on how the migrant labourer and others will be helped. It is also necessary," Rangarajan told Press Trust Of India.

The lockdown has brought the economic activity to a "halt", he said.

"Perhaps in the first quarter of the year, GDP growth may even be negative. But that could be made up by the growth in the next three quarters,” the former RBI governor. “Some people have estimated the growth rate to be about 2 percent. But I think probably it will be closer to 3.5 percent for the year as a whole.”

But that all depends on how long this virus will continue, he said, when asked about the lockdown's impact on India’s economic growth.

Rangarajan said the Direct Cash Transfer system is one of the mechanisms through which the government can help migrant labourers. Providing food and other relief material to them must be the first priority of the dispensation, he said.

The former central banker also sees higher-than-expected government spending to counter the pandemic. Finding resources to fund this expenditure will be difficult.

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According to him, the centre needs to go for extra borrowings for which the Reserve Bank of India will have to step in to support the government’s fundraising plans.

“The government itself is placed in a situation where it will have to borrow a lot more than what was planned. In that also, RBI will have to help in some manner in a mutual agreement with the government to provide liquidity to the government," he said.