Raghuram Rajan says focus on protecting economy now, don’t worry about credit ratings

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August 6, 2020 6:01 PM

Raghuram Rajan said that policymakers should focus on protecting the economy instead of being overly focused on what ratings agencies think.

credit rating, economy, raghuram rajanThough the RBI and government have been cooperating, the ball is in the government’s court to do more.

Former RBI governor Raghuram Rajan today said that India needs to convince the investors that after the coronavirus pandemic is over, the country will return to fiscal responsibility over the medium-term. Speaking at the Global Markets Forum, Raghuram Rajan added that the policymakers should focus on protecting the economy instead of being overly focused on what ratings agencies think, Reuters reported. Given the limited resources in India, he further said that the RBI needs to focus on whether the credit is reaching the stressed areas of the economy and also if the viable firms were able to access credit and not the unviable ones.

However, he also highlighted that though the RBI and government have been cooperating, the ball is in the government’s court to do more. Referring to the relief packages rolled out by the centre, Raghuram Rajan said that the government has announced several initiatives to help the poor and MSMEs, but actual cash outgo from the government’s measures has been estimated at just about 1 per cent of GDP.

Over RBI’s today’s decision of maintaining status quo on policy rates, the former RBI Governor said that the central bank has reduced the key lending rate by 115 basis points on top of the 135 bps last year but decided to hold rates steady against market expectations as inflation pressures have risen. He added that India should now focus on protecting its economic capabilities, so that when it has dealt with the virus, it can resume activity in a reasonable way and if the country does that, there is no reason why the rating agencies will not see that as an appropriate policy.

Meanwhile, even after passing through one of the strictest lockdowns in the world for more than two months, cases in India have continued to rise steadily since the government eased restrictions in June. Raghuram Rajan said that the rising cases have hindered hopes of an economic recovery. 

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