Raghuram Rajan says save people before saving the economy

• Former RBI governor Raghuram Rajan believes that the government’s top priority should be allocating financial resources towards medical supplies required to fight the Coronavirus pandemic.
• He told India Today in an interview that the second priority should be providing assistance to poor households.
• Only when those two things are taken care of should the government think about introducing a monetary or fiscal stimulus to help the economy, Rajan said.

Former RBI governor Raghuram Rajan believes that the government’s top priority should be procuring medical supplies to fight the Coronavirus pandemic. He said that no expense should be spared in its battle to control the spread of Covid-19.

“We need to spend money on medical supplies, ventilators, and masks — on getting protective equipment for medical workers. This means getting resources from private, public, defence, retirement — every resource — and quickly,” Rajan said speaking to India Today. .

Rajan explained that even though temporary income support would make sense, the government’s resources are already very limited. “This is not the time to discuss that,” he said about a possible economic and monetary stimulus that the economy might need.

However, the finance minister Nirmala Sitharaman on March 24 said that an economic stimulus package would be announced “sooner than later”. She also announced a list of compliances that have been relaxed including delaying IT return filing et cetera.

As per Rajan’s list of priorities, the second step should be to address the marginalised sections of the community. Making sure that the livelihoods of poor households — both rural and urban — have enough to sustain themselves.

Only when these two critical issues have been addressed, should the government allocate finances towards fixing the economy, according to Rajan.

How should the government handle the Coronavirus’ impact on the Indian economy?
According to Rajan, everyone is looking at China right now to see if their preventive measures against the spread of Coronavirus will hold. It has already reported a dip of 10% in its GDP during the first quarter. The estimates for Europe and the US also indicate a double-digit fall during the second quarter.

When it comes to India, it’s important to make sure that the temporary pandemic shock on the economy doesn’t become a permanent feature, according to Rajan. The downturn of the economy leads to a slowdown in cash flow and takes away the income of workers. He points out that if this carries on for long enough, it could lead to substantial layoffs and firms closing down.

“When the Coronavirus is under control, there won’t be a lot of economic activity because those businesses won’t start up again,” said Rajan.

He said that even though the government can’t necessarily offer financial support — it can offer partial guarantees and incentivise banks to continue extending credit.

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