India’s GDP data should ‘Alarm Us’, says former RBI governor Raghuram Rajan

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DY365
Published: September 7,2020 01:26 PM
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September 7, 2020: Former Reserve Bank of India Governor Raghuram Rajan on Monday said the India’s GDP data for the first quarter of financial year 2020-21 “should alarm us all”

September 7, 2020: Former Reserve Bank of India Governor Raghuram Rajan on Monday said the India’s GDP data for the first quarter of financial year 2020-21 “should alarm us all” and the government and bureaucrats need to be frightened out of their complacency and into meaningful activity.



In a post on LinkedIn, Rajan, currently a professor at the University of Chicago, suggested that India’s economy is far worse than two of the most Covid-affected advanced countries — the US and Italy.



“The recently released quarterly GDP growth numbers for the first quarter of FY2020-21 should alarm us all. The 23.9% contraction in India (and the numbers will probably be worse when we get estimates of the damage in the informal sector) compares with a drop of 12.4% in Italy and 9.5% in the US, two of the most Covid-affected advanced economies,” he wrote, adding, “India is even worse off than these comparisons suggest. 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.”



 “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…” he said.





Rajan said economic stimulus was like a tonic, but "if the patient has atrophied, stimulus will have little effect".



“Even SMEs that have stayed open but have huge unpaid bills and interest will not be able to function well. Without relief measures, the growth potential of the economy will be seriously damaged. Brazil, which has spent tremendously on relief, is seeing a much lower downgrade to medium term growth than India.”



The Narendra Modi government, he cautioned, will have to expand the resource envelope in every way possible, and spend as cleverly as possible. “It also has to take every action that can move the economy forward without additional spending. All this requires a more thoughtful and active government. Unfortunately, after an initial burst of activity, it seems to have retreated into a shell.”



Rajan said India needs strong growth, not just to satisfy the aspirations of youth but to keep the unfriendly neighbours at bay.