Rajan suggests that the Centre must announce a ₹65,000 crore package to financially aid the poor
Focus should be on creating ‘many, many more new jobs of good quality’, says Rajan
NEW DELHI :
The Centre must announce a ₹65,000 crore package to support the poor, and open up the economy quickly, but in a measured way, to save jobs, former Reserve Bank of India (RBI) governor Raghuram Rajan said on Thursday.
“We need to open up in a measured way, but as fast as possible, so that people will have jobs. We do not have the capacity to support people across the spectrum for too long," Rajan said in a conversation with former Congress president Rahul Gandhi.
The focus should be on how to create “many, many more new jobs of good quality" and empowering local bodies was key to ensuring good governance, he said.
Rajan said that finding ₹65,000 crore for a package for the poor was not a big challenge. “It is not a big amount. Our gross domestic product is ₹200 trillion. Out of this, ₹65,000 crore is not much. It can be done. We have to do it," he said.
Rajan’s comments come amid the covid-19 crisis, which led to mass reverse migration of daily-wage earners who lost their jobs soon after India announced a nationwide lockdown, and experts and industry leaders urging the government to provide a big stimulus package in view of the concerns over the economy contracting in FY21.
Earlier this week, former chief economic advisor Arvind Subramanian warned that policy makers should brace for a significant contraction in economy this financial year. The economic cost of a prolonged lockdown aimed at saving lives poses a major challenge for the Union government led by Prime Minister Narendra Modi, which promised to double farmers’ income and bring one-fifth of India’s 1.3 billion people out of poverty. The government has already allowed agriculture and agro-processing activities to resume so that winter harvesting and the upcoming sowing season are not affected.
Economists said the recovery trajectory will be different for different sectors. “Agriculture will relatively be the least affected, while services faces the threat of permanently destroyed demand. Manufacturing industry, which unlike services can store finished products, will come out of the crisis as and when the administration lifts the restrictions," Sachchidanand Shukla, chief economist, Mahindra Group, said in an interview.
Opening up green zones, which have not reported coronavirus infections, with adequate precautions is the way forward, but there are significant challenges ahead, said experts.
“One serious challenge which will have long-term implications is how the banking sector’s health will pan out in the next two years. The other challenge is the already dwindling savings. Any fiscal support we are contemplating has to be financed by domestic savings, other than any monetization of debt. These are two risks India faces in the road to recovery," said N.R. Bhanumurthy, professor, National Institute of Public Finance and Policy, a think tank.
Gandhi cited the Panchayati Raj initiative, which promotes decentralization and empowerment of local bodies. “It has had a huge effect, but I’m sorry to say it is in retreat. We are sort of moving back to this bureaucratic, DM-bureaucrat-based structure," said Gandhi.
More such interactions have been planned by the Congress where Gandhi will have a dialogue with sectoral experts on the economy and the sociopolitical impact of the coronavirus pandemic.
The former RBI governor also said that the lockdown should be lifted according to priority.
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