Raghuram Rajan Has Said That The GDP Contraction Of India Is Going To Alarm Everyone

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Image Credit – Times Of India


Noted economist and former Governor of Reserve Bank has said that there is a negative growth associated with the numbers of GDP that is going to alarm everyone. These words of wisdom came from him just a week later, after India has reported a significant contraction in GDP during the quarter of April-June for 2020-21 fiscal.

He has emphasized the importance of support and relief provided by the government in the given scenario and has pointed out to the fact that, so far it has been ‘meager’.

According to a note published on LinkedIn, he also opined the fact that there has been a 23.9 percent contraction during the Q1 in the GDP and it is going to be even worse if the damages done to the informal sector are considered.

Rajan has also said that the growth numbers of quarterly GDP that are released recently for the first quarter of FY 2020-21 are going to alarm us. The contraction in India by 23.9 percent has been compared to a drop of 9.5 percent in the USA and 12.4 percent in Italy which are the two of the most advanced countries affected by Covid-19.

According to him, India is even worse-off than what is suggested by these facts. The coronavirus pandemic is still raging in India discretionary spending is going to stay low until the virus is contained. Government relief is going to be the most important issue in this scenario.

Nevertheless, the support from the government has been very less primarily in terms of the food grains that are given to the poor households and also the credit guarantees to banks for lending to medium and small firms in places where the takedown has been a bit patchy.

The reluctance of the government to do more seems partly because it is going to conserve resources for a possible stimulus in the future. According to him, the strategy has self-defeated itself.

He also stated that this is the time when the government should expand the resources to take more action and spend more as the Indian government has retreated into a shell.

He also added that the government and the firms in the public sector must quickly clear their payables so that the liquidity gets moved to the corporations.

He also added that small firms that are below a certain size can be rebated on GST tax and a corporate income that has been paid last year as some portion of it has to be done as the rebate will be tapering off with the firm size.

This is going to be an objective way to help small and viable firms based on the metrics that hard to manipulate even rewarding them for their honesty at the same time. Resources must also be set aside by the public sector banks to recapitalize because of the extent of the losses.