Former RBI governor Raghuram Rajan expressed his concern over India’s historic fall of GDP in the first quarter of 2020-21.
Rajan commented the -23.9 % GDP recorded in the first quarter is alarming dangers for the country and the economic growth may worsen after revised GDP data accounts for losses in informal sector.
The economist opined in an article regarding India’s GDP fall is far worse as compared to other economies that have been severely affected by the pandemic.
Raghuram Rajan warned on ongoing induced crisis which would worse condition of India as it has taken a toll on discretionary spending. He explained spending by Indians is likely to remain low untill pandemic is contained.
Rajan said that “government-provided” relief measures are essential in helping the economy stabilise.
He say that government-provided relief, which included free food grains to poor households and credit-guarantees to banks for loans to MSME’s.
The former RBI governor said that the government needs to change its approach and it should not be reluctant to announce more fiscal measures.
He said the strategy in conserving resources for a possible fiscal stimulus in future is “self-defeating”.
Rajan highlighted scenarios of India’s middle class who may further cut down spending to tackle the crisis if help is not provided. He went on adding that SMEs such as small restaurants will stop paying workers, let debt pile up and may even shut shop if stimulus is not provided directly.
He also deliberated his thoughts on government officials — who claimed India is heading for a V-shaped recovery — to take a hard look into the situation.
Giving an example of the US economy, he asked India’s government officials to consider why the biggest economy in the world continues to and is worrying about growth despite spending 20 per cent of GDP in fiscal and credit relief measures.
Rajan adding target on Modi government, focused more on public welfare and distribution rather than upgrading growth. While the welfare schemes introduced by the government were just cheered, Rajan questioned on why schemes were implemented during a time when revenue was hitting hard.
The expert economist also cautioned the government and expressed concern regarding “excessive centralisation of power” in political decision-making in the country.
In his recent blogpost, he took a swipe at the “divisive, populist, majoriatarianism” ways of decision-making while ignoring economic growth completely.
“With no criticism, the government would live in a pleasant make-believe environment, until the harsh truth can no longer be denied,” Rajan said.