India’s Economic Package Inadequate, Government Must Pull Out All The Stops: Raghuram Rajan

Calling India’s Rs 20-lakh-crore stimulus package inadequate for reviving an economy pummelled by Covid-19 pandemic, former Reserve Bank of India Governor Raghuram Rajan said the package gave free foodgrains but migrant workers, rendered jobless by the lockdown, needed money to buy milk, vegetables and cooking oil and to pay rent.

The world is facing the greatest economic emergency and almost any resource is inadequate, he said.

“I think it is particularly so in the case of India because we have years of economic drift in which our growth had slowed, our fiscal deficit has gone up. There is a lot more we need to do to put the economy back on track,” he said in an interview to Karan Thapar for news portal ‘The Wire’. “The package has some good points but it probably needs to do more.”

The former chief economist of the International Monetary Fund said the government needed to find ways to give relief to people and companies affected by Covid-19 and the ensuing nationwide lockdown.

“We got to repair places in the economy that need repair. This includes some of the big firms, this includes banks, and of course this includes MSMEs. We need to provide for recovery, that means some kind of stimulus so as to get the recovery going. And we need reforms,” he said, adding the package failed not just in providing resources for economic recovery but also in addressing the distress faced by sections such as migrant workers.

Migrant workers have been left “adrift” after economic activity in the country came to a halt in the lockdown that was imposed on March 25. While the government is giving foodgrains to unemployed migrant workers, the poor and vulnerable, it’s not enough, Rajan said.

“It’s important to both send more money and open foodgrain. They need vegetables, they need oil to cook, they need other stuff that means a certain amount of money along with foodgrain. They need shelter,” he said. “Saving the economy, saving people is most important.”

Rajan, according to a press release issued by ‘The Wire’, said the government must consult opposition talent as facing a catastrophe of this magnitude could not be done by the Prime Minister’s Office alone.

He said the threat to India’s economic prospects was such that the government must consult the best talent in the country and not worry about who is across the political aisle. The situation could get very ugly, he said.

Rajan said the challenge was not just to repair the damage done by the coronavirus and the lockdown but the preceding three-four years of economic drift.

Asked if a government that was responsible for the drift and doesn’t even accept the economy had been drifting could be the one to battle it, the former RBI governor said there was a lot of capable talent in the country and the government should call on it.

Rajan said the task of recovery involved reviving the construction sector and pushing forcefully ahead with infrastructure development.

Asked what would be the state of the economy a year from now if the government did not announce further measures, Rajan said it would be heavily constrained.

He said the government should not worry about what the rating agencies would do if the fiscal deficit grew because of measures to heal the economy and people. These agencies could be told that increased spending was necessary to preserve the economy but also that as soon as possible India would return to the path of fiscal rectitude, he said.

On the economic package mostly relying on extending credit, Rajan said loans took time to work. “Hunger, on the other hand, is an immediate problem.”

Micro, small and medium enterprises, for whom the government announced a credit line as part of the economic stimulus, were one of the most indebted sectors, and loans would only add to their indebtedness, Rajan said.

Speaking about the big industries and, in particular, segments like aviation, tourism, car manufacturing, and construction which have been grounded by the lockdown, Rajan said while U.S.-style bailouts were not possible, India’s airlines were nonetheless bleeding and the government must offer them debt relief.

The financial sector, he said, had been in deep distress for a long while before this crisis struck. It needs re-structuring, re-capitalisation and the “hole in the leaking bucket must be plugged”.