Calling India's Rs 20.9 lakh crore stimulus inadequate in providing for recovery of an economy pummelled by COVID-19, former RBI Governor Raghuram Rajan has said the package gives free foodgrains but migrant workers, rendered jobless by lockdown, need money to buy milk, vegetables and cooking oil and 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 economy back on track. We have to pull all the stops," 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 IMF said ways have to be found to give relief to people and companies affected by COVID 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 MSME. 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.
Rajan added that the package failed not just in providing resources for recovery of an economy pummelled by COVID but also in addressing the distressed faced by sections such as migrant workers who need money along with foodgrains. The government has in its economic stimulus package provided for 5 kg of foodgrain and Rs 500 per month for three months to poor women having Jan Dhan accounts.
Migrant workers who have been left "adrift" after most economic activity in the country came to a halt following the imposition of a coronavirus lockdown beginning March 25. While the government has given free foodgrains, migrant workers need money, he said.
Giving foodgrains to unemployed migrant workers, the poor and vulnerable was not enough, he said. They also need vegetables and cooking oil and, most importantly, money and shelter. "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 cannot be done by the Prime Minister's Office (PMO) alone. "We must pull out all the stops... if more is not done, the economy will be a shadow of its former self," he said.
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. He said the situation could get very ugly and it cannot all be handled by the PMO.
Rajan said the challenge was not just to repair the damage done by the coronavirus and the lockdown but the preceding 3-4 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 fiscal measures to heal the economy and people. These agencies can be told that increased spending is necessary to preserve the economy but also that as soon as possible India will return to the path of fiscal rectitude, he said.
On the economic package mostly relying on extending credit, Rajan said loans take time to work. Hunger, on the other hand, is an immediate problem. MSMEs, to whom the government announced credit line as part of economic stimulus, were one of the most indebted sectors, and loans would only add to their indebtedness, he said.
Speaking about the big industry and, in particular, segments like airlines, tourism, car manufacturers, and construction which have been grounded by the lockdown, Rajan said that while US-style bailouts were not possible, India's airlines are 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.