Former Indian central bank governor Raghuram Rajan said the country’s economy will be a shadow of its former self if urgent measures are not taken.
In an interview with web portal The Wire, Rajan said the country was facing an unprecedented economic crisis and the government should hold wide consultations, including those from the opposition parties, to deal with the situation.
He added that the problem cannot be handled by the Prime Minister’s Office alone.
He said even before the current lockdown, imposed to control the spread of coronavirus, the country had been facing an “economic drift” for the past 3-4 years. Rajan said the financial sector had been in deep distress and called for better quality management of public sector banks.
The former RBI governor said reviving the construction sector and pushing forcefully ahead with infrastructure development was the key to recovery.
As for the recent 20-trillion rupee (US$264 billion) package announced by the government, Rajan said almost any response was inadequate, particularly in India’s case. He added that the government must pull out all the stops.
Rajan said giving food grain to unemployed migrant workers, the poor and vulnerable was not enough. “They also need vegetables and cooking oil and, most importantly, money and shelter,” he added.
He wanted the government to take steps to improve the condition of the cities to attract the millions who have fled to their villages. The sudden announcement of a lockdown by Prime Minister Narendra Modi on the evening of March 24, giving barely four hours notice, had stranded millions of migrant workers who had no means of survival.
Many had to walk thousands of kilometers to reach their hometowns as trains and buses had stopped running.
While commenting on the labor reforms announced by three states – Uttar Pradesh, Madhya Pradesh and Gujarat – he said that although such reforms are needed, they should be brought in after wide consultations and not by the stroke of a pen.
He said small industries were highly indebted and the government must pay them the money owed as dues. Central Minister Nitin Gadkari recently admitted that the government owed nearly 5 trillion rupees as dues to small industries.
The country went into lockdown on March 25 to contain the spread of the coronavirus, but it has been extended three times. This has badly affected every sector of the economy.
Industries were resorting to employee pay cuts and lay-offs to salvage cash. The worst hit sectors were travel and tourism, airlines, automotive and hospitality.
Almost every rating agency has downgraded the country’s gross domestic product growth forecast, while some have even said the economy may contract this year. Goldman Sachs predicted India would suffer its most severe recession since 1979 this fiscal year.