Former RBI governor Raghuram Rajan has said that the government should spend carefully
New Delhi:
India’s economy has “some bright spots and some very dark stains” and the government should target its spending “carefully” so as not to run into too large a deficit, the economist and former president said. Reserve Bank of India (RBI) director Raghuram Rajan said on Sunday.
Known for his outspoken views, Mr Rajan also suggested that more government needs to be done to prevent a K-shaped recovery of the economy affected by the coronavirus pandemic.
In general, a K-shaped recovery would reflect a situation where technology companies and large capitals recover at a much faster rate than small businesses and industries significantly impacted by the pandemic.
“My bigger worry about the economy is the scarring of the middle class, the SME sector and the minds of our children, all of which will come into play after the initial recovery due to pent-up demand. One symptom of all this is weak consumption growth, particularly for mass consumer goods,” the former RBI governor said in an e-mail interview.
Mr. Rajan, now a professor at the University of Chicago’s Booth School of Business, notes that as always, the economy has some bright spots and some very dark spots.
“The bright spot is the health of the big companies, the massive business activity that the IT and IT support sectors are doing, including the emergence of unicorns in some sectors, and the strength of the industry,” he said. of some parts of the financial sector”.
On the other hand, the “black spot” is the low level of unemployment and purchasing power, especially in the lower middle class, the financial stress that SMEs are experiencing, “including credit growth very bleak, and tragic the state of our schooling”.
Mr Rajan thinks Omicron is a step backwards, both in terms of health and economic activity but warned the government about the possibility of a K-shaped economic recovery.
“We need to do more to prevent a K-shaped recovery, as well as a reduction in our medium-term growth potential,” he said.
The country’s GDP is expected to grow above 9% in the current financial year ending March 31. The economy, which has been hit hard by the pandemic, shrank 7.3% in the medium fiscal. via. Before the union budget, Mr. Rajan said that the budget is supposed to be a document containing a vision and that he would love to see a five or 10 year vision for India as well as a plan for the kinds of institutions and frameworks under which intended government. to establish.
On whether the government should consolidate fiscal or continue with stimulus measures, Mr. Rajan pointed out that the fiscal situation of India, even in the time of the pandemic, is not good and this is the reason why. Why can’t the Finance Minister spend comfortably now.
While the government must spend where it is needed at this time to ease the pain in the hardest parts of the economy, he said, “We must target our spending carefully so as not to suffer big deficit.” Finance Minister Nirmala Sitharaman is scheduled to present the 2022-23 Union Budget in Parliament on February 1.
Regarding the upward trend of inflation, Mr. Rajan said inflation is a concern in every country, and India is unlikely to be an exception.
According to him, the announcement of a credible target for the country’s consolidated debt over the next five years along with the establishment of an independent fiscal council to choose the quality of the budget would be very useful steps. useful.
“If these moves are deemed credible, debt markets may be willing to accept a higher temporary deficit,” he said, adding that in order to convince markets that “we will be held accountable.” , we should strengthen institutional support for future fiscal consolidation.” Furthermore, the former RBI governor said that one way to expand the budget is through asset sales, including parts of government businesses and excess government land.
“We need to be strategic about what we can sell and how we can improve the performance of the economy through those sales… However, once we decide to sell, we should go fast, which we haven’t done so far”.
Regarding the upcoming budget, Mr. Rajan said he would be pleased to see more tariff cuts and fewer tariff increases, as well as fewer subsidies or subsidies for specific industries. “In particular, (I) welcome an independent review of affiliate production incentive programs.”
