Former Reserve Bank of India Governor Raghuram Rajan on Thursday said that the Centre’s Rs 20-lakh-crore economic package to counter the fallout of the coronavirus pandemic is inadequate. In an exclusive interview to The Wire, the economist said that the government needs to “pull all the stops” to revive the economy, which has been hammered by weeks of lockdown.
Rajan said that the government’s challenge is not just to tackle the impact of the worsening health crisis but to repair years of “economic drift”. “We have years of economic drift in which our growth had slowed, our fiscal deficit has gone up,” Rajan told The Wire. “There is a lot more we need to do to put economy back on track. We have to pull all the stops. The package has some good points but it probably needs to do more.”
The former RBI governor added that the government’s package had also proved insufficient in providing relief to distressed migrant workers. “It’s important to both send more money and open foodgrain,” Rajan said. “They need vegetables, they need oil to cook, they need other stuff that means a certain amount of money along with foodgrain. They need shelter. Saving people is most important.” He said that the government needed to work on improving the condition in cities if migrant workers were to go back.
Speaking about small industries, Rajan said the loans announced by the government would put more financial strain on them. “We have to repair places in the economy that need repair,” he added. “This includes some of the big firms, this includes banks, and of course this includes MSME [Micro, Small and Medium Enterprises].
During the interview, Rajan also said the government needs to listen to Opposition leaders’ suggestions on rebuilding the economy Rajan. “I am very worried about the extent of the catastrophe we’re facing,” he said. “The government must consult opposition talent. It can’t all be done by the Prime Minister’s office. If more is not done, the economy will be a shadow of its former self.”
The Centre’s economic package has been criticised by several Opposition leaders. Congress leader Rahul Gandhi had appealed to the prime minister to re-think the package and provide direct cash transfers to vulnerable sections of people. His party colleague and former Finance Minister P Chidambaram claimed that the package had left several sections of society “high and dry”.
Among other things the former chief economist of the International Monetary Fund said were that public sector banks needed better management – something he has often said before – and that sectors such as tourism and aviation that were badly affected during the pandemic needed debt relief. Rajan added that labour reform should not be done with “the stroke of a pen”, and that the Centre should not worry about ratings agencies with regard to an increase in the fiscal deficit.
The Centre’s economic package consists of five portions, focusing on the Micro, Small and Medium Enterprises sector, alleviating the plight of migrant workers, improving agricultural infrastructure and allied industries, coal mining and defence manufacturing and allocations under the Mahatma Gandhi National Rural Employment Guarantee Act.