Mumbai: Former RBI Governor Dr Raghuram Rajan took to social media on Monday to share his article titled ‘A wake up call?’ It was in the context of India’s GDP shrinking by an alarming 23.9% in the first quarter of 2020-21.
The article points out that India is worse off than even the US and Italy, two of the hardest-hit nations by the COVID-19 global pandemic.
The government and its bureaucrats need to be frightened out of their complacency and a stimulus is critical to prevent an “atrophied” economy, says Rajan. Economic stimulus, he added, was like a tonic, but “if the patient has atrophied, stimulus will have little effect”.
“The pandemic is still raging in India, so discretionary spending, especially on high-contact services like restaurants, and the associated employment, will stay low until the virus is contained. Government-provided relief becomes all the more important,” he says.
Calling the strategy to conserve resources for a possible future stimulus as self-defeating, the eminent economist notes: “If you think of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease. Without relief, households skip meals, pull their children out of school and send them to work or beg, pledge their gold to borrow, let EMIs and rent arrears pile up… Similarly, without relief, small and medium firms — think of a small restaurant — stop paying workers, let debt pile up, or close permanently. Essentially, the patient atrophies, so by the time the disease is contained, the patient has become a shell of herself.”
Seemingly as a reference to Chief Economic Advisor Krishnamurthy Subramanian’s comments, Rajan writes: “Instead of claiming there is a V-shaped recovery round the corner, they should wonder why the United States, despite spending over 20 percent of GDP in fiscal and credit relief measures, is still worried the economy will not return to pre-pandemic GDP levels by the end of 2021.”