India Today TV spoke to former Reserve Bank of India Governor Raghuram Rajan to understand the extent of the possible impact of coronavirus outbreak on the Indian Economy and what can be done to minimise the shock.
oronavirus outbreak has hit the economies hard, wiping out a major chunk of global wealth due to shutdowns, bans and investor concerns. India Today TV spoke to former Reserve Bank of India Governor Raghuram Rajan to understand the extent of the possible impact of coronavirus outbreak on the Indian economy and what can be done to minimise the shock.
Extent of economic shock
The extent of impact of novel coronavirus is the big unknown at the moment but it will be severe, Raghuram Rajan said. “The extent of its impact is a big unknown right now. How long it will take to get it under control, how much GDP will be lost in the process, and how much can be recovered when the restrictive measures are taken off it is all unknown at the moment,” Raghuram Rajan said.
The former RBI governor said that much depends on what happens next in China. “With relaxations in place due to drop in the number of cases, everyone is looking at China to see if there are recurrences because if that happens then it means measures have to be in place longer and damages could be much larger,” he said.
The economic expert said that the length of the coronavirus outbreak and recurrences could be the difference between depression and recession.
For now, China has lost around 10 per cent of its GDP in the first quarter and the projections for the United States and European countries say that they will end up losing a similar percentage of their GDP in the second quarter, he said.ADVERTISEMENT
Raghuram Rajan, who is currently at the University of Chicago, said that one of the possible outcomes of the coronavirus outbreak could be the severe reduction in the global supply chains.
“It is a little early to say which direction it will take, of course, it is a huge unprecedented event. It could lead to countries being wary to having supply chains across the borders because they know they cant rely on them. But the other outcome is it can bring the world together knowing that we have to deal with such huge global challenges, may make us more aware that we need to deal with climate change,” Raghuram Rajan told India Today TV’s Rahul Kanwal.
What can the Indian government do to minimise economic shock
Organise medical resources
According to Raghuram Rajan, while saving larger business was crucial for the Indian economy, but the first priority for the government must be organising medical resources to fight the novel coronavirus.
“We need to prioritise. We must focus on buying ventilators, masks, getting protective equipment for our doctors and nurses so that they can do their jobs, and that means bringing every resource in whether it is private, public, retired, defence… get everything in on the act,” he said.
“The government must gather all the resources and point them where they are needed the most. We need to find out where are the masks, where are the ventilators, where is the spare hospital capacity,” Raghuram Rajan said.
On being asked about the absence of the global supply of medical resources, the ex-RBI chief said that Centre will have to use all the tricks in the book to acquire what is available in the international market.
“In the immediate context, we need to find the necessary supply wherever we can find, even if we have to cajole or push. Since every country is trying to do that, we need to use every way we can to apply pressure and bring-in all that we need,” Raghuram Rajan said, adding that beyond the current scenario, the crisis raises the question on if we are self-sufficient for critical resources. “But that’s a medium-term issue,” he said.
Income support for poor
Raghuram Rajan said that the second most crucial thing for the government right now should be to ensure that money is put into the hands of the poor.
“The key is to make sure that the temporary shock does not become a more permanent shock. In other words, we must not have slow cash flows, no revenue, no income for workers, as that would lead to substantial lays offs, and that would lead to firms closing down and when the measures are withdrawn there will be a much less economic activity,” he said.
Suggesting a way out, the ex-RBI chief said that the government must build income bridges between now and the time when the restrictive measures will be lifted.
“We need bridges between now and then, for the most vulnerable households in India – for the poor, for migrants, we need ways to get money to them. But we also need to keep firms alive, firms which have suffered shock aftershock, we need to keep them from closing down, if they are viable. And that decision is a careful one because we can’t keep every firm alive given that we have limited resources but we should keep the viable ones alive so that they can reopen, similarly for the large firms,” he said.
Dismissing the idea that the Indian government should mull rolling out a universal minimum wage to solve the problem, the economic expert said that the government cannot be thinking about long-term measures at the moment.
“Temporary income support is possible but beyond that, we don’t have the money. This is not the time to discuss universal basic income,” he said.
Raghuram Rajan said that the Indian financial system was an impaired financial system which was evident from the fact that the ‘central bank is currently unable to provide credit support to businesses’.
“The government should provide partial guarantees to make sure banks continue lending to small and medium business enterprises and to large businesses, but we have to be careful as we have limited fiscal space so there has to be some incentive for the banks to also to take credit risk into account,” Raghuram Rajan suggested.
Rajan said that the RBI should take a cue from the central banks across the world which are contributing to solving the problem by easing liquidity. “Liquidity should not be a constraint, instead the central bank should be helping in credit,” he said, adding that credit will have to distributed with caution so that India’s staggering NPAs do not rise further.
The ex-RBI chief urged the Indian government to communicate with the public clearly that it is a national emergency. “People must know that it is something that is affecting everyone,” he said.
“If it has not happened to you right now, does not mean it won’t happen to you tomorrow,” Raghuram Rajan said, adding that the people must be encouraged to follow the protocol for the safety strictly.
Additionally, he asked the government to issue correct and detailed data of infections across the country so that timely interventions can be introduced.
“India needs to step up testing and do mass testing and release the data so that state governments can intervene and provide solutions,” Raghuram Rajan said.
Alert young crowd
Raghuram Rajan said that the most common problem across the globe was that young people were not taking the problem seriously. They are assuming that they are not at risk, but they could be the carriers, he said.
“India must make sure that young people are alert and aware of the risks of possible transmission disease. Everyone must be encouraged to follow good hygiene habits to ensure the curb on the spread of the disease.
The central and state governments on Sunday announced lockdown in about 80 districts in the country where at least one confirmed case of COVID-19 was reported.
The districts where lockdown was announced include 10 districts each in Maharashtra and Kerala, six districts each in Uttar Pradesh and Gujarat, five each in Karnataka and Haryana, three each in Tamil Nadu and Punjab.
Meanwhile, S&P Global Ratings on Monday cut its estimate for India’s GDP growth for the next fiscal to 5.2 per cent from its earlier estimate of 6.5 per cent, which further worsened the market sentiment that has been already reeling under the coronavirus spread.
In the global market, bourses in China, Hong Kong and South Korea plunged up to 5 per cent, while those in Japan ended on a positive note. Bourses in Europe sank up to 4 per cent.
The number of global Covid-19 infections has shot past 3,00,000. Worldwide fatalities topped 14,000. Cases in India spiked to 480 with at least nine deaths.
Source: India Today