‘Nobody looks at India as a frail economy’ – Raghuram Rajan

12 Apr, 2020 Nandini Katti, Faculty, KES Shroff College Mumbai

In the midst of the COVID 19 crisis, had the opportunity to listen to former RBI Gov’s thoughts
on our economy. Must say nothing less than brilliant.

Penning my views down here about what was said

The COVID 19 precaution and care India started early, but it is essential to curb the rate of
infection, still the crisis on life and economy looms at large. Observing the movement of the
Chinese economy due to lockdown in their first quarter had a plunge down of 35% of their
annual GDP. Post lockdown they are at 95% on core consumption and plants have begun their
operations, yet far from normal capacity. Looking westwards, international comparisons
predicted by EUI (Economist Intelligence Unit) shows the growth in US and Europe which was
around a moderate of 1.5% and 2 to 2.5% will slide to a negative of -2.8 % and probably -6%
respectively, despite a huge fiscal stimulus of 10% to between 20% of its GDP.

India and China show statistics of optimism of a +ve GDP. In India as staggered economic
recovery would vary from industry to industry. A lot may depend on the consumption moods and
patterns of the consumers post lockdown forcing industries to change their work patterns, for eg
restaurants may focus on takeaways. The COVID 19 death rate curve needs to flatten to boost
the confidence and optimism of the masses. This means for India a staggered slow recovery is
the way out. A moderate fiscal discipline message needs to be sent across the globe to avoid
flight of capital and a financial sector meltdown. (a fiscal stimulus of 10% to 20% of GDP for
India is a big NO) Whatever plants were outsourced to India pre pandemic, India needs to keep
them operational and thereby avoid nervousness among foreign investors.

The migrant labour, the jobless labour and the poorest labour, the government needs to prioritise
food transfers direct through the PDS, through the NGOs, or when else will India utilize its 80
million metric tons of food stock?. Assistance to poor and lower middleclass must aim at helping
them to survive keep their livelihoods alive.

The RBI could inject more liquidity in our banks, push funds into insurance companies so that
they in turn can fund companies. Large companies also have a chain of small suppliers, thus the
big fishes can invest in the small ones such that MSMEs will be taken care of. The RBI’s 8-9
lakh crores is an asset of the GOI, which helps the government against its liabilities. The asset
also serves as the economy’s strength. Not to forget the $470 billion forex reserves.

My thoughts will be half done – When asked by Prannoy Roy of NDTV to Dr Raghuram Rajan

“Will you come back to India if asked to help in this crisis?”

The modest gentleman replied

“The answer is straightforward – YES”.