Millennium Post

India facing greatest emergency since 1947: Raghuram Rajan

Urging the government to prioritise spending on the poor and call people with proven expertise and capabilities, including from Opposition parties to deal with the coronavirus pandemic, former RBI governor Raghuram Rajan called the virus the "greatest emergency since Independence." Stating that if the government insists on driving everything from the Prime Minister's Office, with the same overworked people, it will do "too little, too late".

In a blog titled "Perhaps India's Greatest Challenge in Recent Times" on his Linkedin profile, Raghuram Rajan said there is "much work to do" and with the "right priorities and drawing on India's many sources of strength," the country can beat the virus.

Laying out steps the country could take to recover from the economic effects of the COVID-19 outbreak, Rajan said the immediate priority is to plan the next steps after the 21-day lockdown ends on April 14. Stating that spending on the needy is "the right thing to do as a humane nation," Rajan wrote, "Unlike the United States or Europe, which can spend 10% more of GDP without fear of a rating downgrade, we already entered this crisis with a huge fiscal deficit, and will have to spend yet more."

Many small and medium enterprises, already weakened over the last few years, may not have the resources to survive, Rajan said, adding, "Not all can, or should, be saved given our limited fiscal resources." Pointing out that large firms can also be a way to channel funds to their smaller suppliers, Rajan suggested that banks, insurance companies, and bond mutual funds should be encouraged to buy new investment-grade bond issuances, and their way eased by the RBI agreeing to lend against their high-quality bond portfolios through repo transactions.

"The RBI Act will have to be changed to enable the Reserve Bank to undertake these transactions, and it will have to apply suitable haircuts to these portfolios to minimise its credit risk, but it will be much-needed support to corporate borrowing," Rajan wrote.

The former RBI governor also wrote that the Centre should ensure that the poor and non-salaried middle class can survive. "The state and Center have to come together to figure out quickly some combination of public and NGO provision (of food, healthcare, and sometimes shelter), private participation (voluntary moratoria on debt payments and a community-enforced ban on evictions during the next few months), and direct benefit transfers that will allow needy households to see through the next few months. We have already seen one consequence of not doing so – the movement of migrant labour. Another will be people defying the lockdown to get back to work if they cannot survive otherwise."

While the global financial crisis in 2008-'09 was a massive demand shock, he said, the country's workers could still go to work the financial system was largely sound, and government finances were healthy. "None of this is true today as we fight the coronavirus pandemic. Yet there is also no reason to despair," he says, adding that India reforms only in crisis.

"Hopefully, this otherwise unmitigated tragedy will help us see how weakened we have become as a society, and will focus our politics on the critical economic and healthcare reforms we sorely need," Rajan wrote. There are over 4,000 confirmed cases and 109 deaths in India.

(Inputs and image from

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