Raghuram Rajan said that the states and centre have to come together to figure out a combination of provisions to keep the needy households surviving through the next few months.
Former RBI Governor Raghuram Rajan has warned that the migrant labourers who went back to their hometown may return if they can’t survive through the financial crisis. This may further deteriorate their condition with the possibility of a large-scale exposure to coronavirus. Direct benefit transfers may reach most of the households but not all and furthermore, the quantum of transfers seems inadequate to see a household through a month, Raghuram Rajan wrote in his article on LinkedIn. Suggesting the way out, he said that the states and centre have to come together to figure out a combination of public, private, NGO and direct benefit transfer provisions to keep the needy households surviving through the next few months.
Raghuram Rajan also said that India is going through the greatest economic crisis since the independence as even during 2008-09 recession, the financial system was sound and the government finances were healthy. In an effort to slowly bring the economy back on track, he laid emphasis on planning for the aftermath as it is unfeasible to keep the country locked down for a longer period.
Restarting certain activities with better data on infection levels and measures to protect workers returning from work, along with an effective and quick administrative structure to ramp up manufacturing activities are among the initial roadmap suggested by him.
The former RBI Governor also clarified why despite keeping spending on the poor and needy on high priority, the government will have to prioritise, cut back or delay less important expenditures, while refocusing on immediate needs. He said that unlike the US or Europe which can spend 10 per cent more of GDP, without fear of a rating downgrade, India has already entered this crisis with a huge fiscal deficit. And, a ratings downgrade coupled with a loss of investors’ confidence could lead to a plummeting exchange rate and a dramatic increase in long term interest rates in this environment, and substantial losses for the financial institutions, Raghuram Rajan further added.