GDP contraction: Five suggestions by ex-RBI governor Raghuram Rajan to revive the economy

Stating that government-provided relief becomes all the more important, Rajan cautioned, “The current period of market buoyancy already looks like a missed opportunity”

Former RBI Governor Raghuram Rajan
Former RBI Governor Raghuram Rajan
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NH Business Bureau

Former Reserve Bank of India (RBI) Governor Raghuram Rajan has said that India’s GDP data should “alarm” all of us.

The reported 23.9% contraction in the economy may worsen when informal sector data is accounted for, said Rajan in a post on his LinkedIn page on Sunday night. Saying that the damage to the Indian economy is far worse than in the U.S. and Italy — two other countries badly affected by the pandemic — Rajan said, “Discretionary spending in India will remain weak until the virus is contained.”

Stating that government-provided relief becomes all the more important, Rajan cautioned, “The current period of market buoyancy already looks like a missed opportunity.”

Rajan also suggested following measures to revive the economy through his post:

  • Replenish Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)
  • Provide more direct cash transfers to the poorest households, especially in urban areas
  • Payables must be cleared by government and public sector firms as early as possible
  • Rebates could be provided on corporate income tax and GST paid by small firms
  • Resources should be set aside to recapitalize public sector banks

Saying that “cash rich platforms like Amazon, Reliance and Walmart should be urged to reduce receivables”, Rajan added, “The belief that the government cannot spend on both relief and stimulus, is too pessimistic…No doubt, the government and its bureaucrats are working hard as always, but they need to be frightened out of their complacency and into meaningful activity. If there is a silver lining in the awful GDP numbers, hopefully it is that.”

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Published: 07 Sep 2020, 11:51 AM
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