Rajan said in an interview to CNBC-TV18 that it is important to prepare for the next phase, and make sure that companies coming out of this phase are in a position to reopen and grow.

former RBI governor Raghuram Rajan
Money Economy Thursday, July 09, 2020 - 20:05

Former Reserve Bank of India governor Raghuram Rajan has said that India needs to get its medical policy right, and that while our deaths per million are low, our cases continue to rise, we have to bend the curve. Rajan was responding to a question on what his advice would be on how India should design a macroeconomic policy in an interview to CNBC-TV18.

Rajan said that it would be difficult to open up the economy is the number of cases keep rising. If we have to keep closing down, it creates a lot of uncertainty for businesses, he said, adding, “but also business gets stuck at a moderate level. So, there is no second-guessing the fact that we need to contain the virus, bend the curve.”

“We need to bring the number of cases down on a reliable basis until we do that, we cannot rest. We have to bring it down to a low number so that we can actually start testing, tracking, and containing it,” he added. 

Raghuram Rajan added that there are lessons to be learnt from non-West countries such as Vietnam and Ethiopia that have successfully tackled COVID-19. “I am, again, not an expert on epidemiology, but it seems to me that there are lessons we can learn from what is happening around the world and we don’t necessarily need to look to the West only for lessons,” he said. 

When asked what the government should do for the economy, Rajan said that it is important to prepare for the next phase, and make sure that companies coming out of this phase are in a position to actually reopen and grow. “They need working capital, some of them need to make investments. We need to make sure they have that ability and that means a couple of things,” he said. 

Elaborating on this, he said that companies should not be over-indebted, and should have the still ability to borrow - and hence, restructuring debt may be on the cards for a number of companies.  

“This is where I think cleaning up the financial sector, making sure they can lend when that is needed, both to the individuals, retail, but also to firms is extremely important,” he added. 

At a time like this, he said, the National Company Law Tribunal should be working all the time and have multiple new offices and make room for all the new cases that will be coming in.

“We don’t have the money to bail out every small firm as the US has done with Paycheck Protection Program, but we have to make sure that those companies are ready to turn. So that is one example of what we need to do,” he said. 

Additionally, Rajan said that we need to create impetus for growth. 

“So, I don’t think we should be waiting and twiddling our thumbs, and I am sure that is not happening, but we should be really prepared for when the economy opens up fully and doing everything we can both in terms of repairing the old damage that is made in the past in the power sector and the financial sector, but also creating sort of stimulus spending,” he added. 

He spoke about the government’s reforms, and said that agriculture reforms are being carried out, but questioned about other reforms that were promised. 

“We talked about privatization; why haven’t we spent these 4-5 months preparing the entities to be privatized and to sell them so that we can have more resources to spend on repairing the economy. These are the questions we should be asking,” he further added. 

When questioned by CNBC TV-18 regarding the buzz former BRICS New Development Bank chief being inducted into the cabinet, Rajan said that getting professionals into the government is needed, especially on the economic and financial side. 

This is because we really need much more capability there and we need people who can think about macro, we need people who can think about the financial sector because we really need a lot of effort to compensate for our more modest resources,” he added.

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