India Faces a Major Economic Catastrophe, PMO Can't Handle By Itself, Says Raghuram Rajan

Former Reserve Bank of India governor Raghuram Rajan in recent interview said, " I’m very worried about the extent of the catastrophe we’re facing … the government must consult opposition talent … it can’t all be done by PMO … we must pull out all stops … if more is not done, the economy will be a shadow of its former self." He even said that the centre's Rs 20 lakh crore economic package to counter the fallout due to Coronavirus pandemic is not adequate to bring back the balanced economy. 

The challenge of the current government is not just to tack the impact of worsening health crises, but also to repair "economic drift" and work towards migrants. “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 economy back on track. We have to pull all the stops. The package has some good points but it probably needs to do more.”

Insufficient for Migrants

Since, the Covid-19 has severely damaged the livelihood of migrants; the former RBI governor also added that the package is insufficient to help distressed migrant workers. It’s important to both send more money and open food grain,” Rajan said. “They need vegetables, they need oil to cook, and they need other stuff that means a certain amount of money along with food grain. They need shelter. Saving people is most important.”

Rajan stressed on reviving the construction sector and pushing ahead with infrastructure development. According to him, challenge of recovery is to review the construction sector and pushing it forcefully ahead with infrastructure development. 

When asked about the state of economy a year from now if the government does not announce further economic measures, Rajan said it would be heavily constrained. He pointedly added it would be a shadow of its former self. He pointed out that the government should not worry about the ratings given from the agencies. He said, agencies could be told that increased spending is very much necessary to preserve economy. 

Offering food grains to migrant workers and other assistance is the need of an hour. They also need vegetables and cooking oil, and more importantly shelter.  Upon asking about FM Nirmala Sitaraman's argument during an interview to ANI, that loans and credit guarantee will have a greater multiplier effect on tackling the problems of the poor than the cash payments, Rajan said, loans take time to work. 

Measures to help MSME

Speaking to The Wire about the government measure to help MSME, Rajan said, MSMEs were one of the most indebted sectors, and loans would only add to their indebtedness. Increased debt would only add to their problems. There was also a danger the banks may not lend but could use the credit guarantees to bail themselves out. He stressed on paying MSMEs the money they owed as dues. 

Speaking about the airline, tourism and car manufacturing industry, Rajan said, the government must offer them debt relief fund to push them ahead to come back to normalcy.

On Financial Sector and Agricultural reforms

Commenting on financial sector, Rajan said, the sector is in deep stress and needs complete re-structuring, re-capitalisation and we must plug the hole in the leaking bucket. On reforms by Central government or state governments have announced, Rajan said he agreed that the agricultural reforms could be game-changers, similar to the end of the licence-permit raj in industry, but they needed to be fully and honestly implemented. 

Welcoming PSUs measures

Rajan welcomed the measures offered towards PSUs permitting to function across the country. However, he is equally worried that necessary privatisation might never happen. He pointed out that only a fraction of the privatisation committed to in any budget has actually happened and, anyway, a lot of it was sale from one government owned entity to another.

In recent economic package released by the center, consist of five portions focusing majorly on Micro, Small and Medium Enterprises sector, alleviating the plight of migrant workers, improving agricultural infrastructure and allied industries, coal mining and defence manufacturing and allocations under the Mahatma Gandhi National Rural Employment Guarantee Act.