India’s GDP Data Alarming, Govt Needs to be Frightened Out of Complacency: Raghuram Rajan

“The recently released quarterly GDP growth numbers for the first quarter of FY2020-21 should alarm us all. The 23.9% contraction in India (and the numbers will probably be worse when we get estimates of the damage in the informal sector) compares with a drop of 12.4% in Italy and 9.5% in the US, two of the most Covid-affected advanced economies,” he wrote, adding, “India is even worse off than these comparisons suggest. The pandemic is still raging in India. So, discretionary spending, especially on high-contact services like restaurants, and the associated employment, will stay low until the virus is contained.”

Stressing on the urgency for government-provided, the renowned economist said, “This has been meager — primarily free foodgrains to poor households, and credit guarantees to banks for lending to small and medium enterprises (SMEs), where the takedown has been patchy. GoI’s reluctance to do more today seems partly because it wants to conserve resources for a possible future stimulus. This strategy is self-defeating.”

“If you think of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease. Without relief, households skip meals, pull their children out of school and send them to work or beg, pledge their gold to borrow, let EMIs and rent arrears pile up…”

Rajan said economic stimulu was like a tonic, but “if the patient has atrophied, stimulus will have little effect”.