Spend on the poor, Raghuram Rajan urges PM Modi
Former Reserve Bank of India (RBI) governor Raghuram Rajan - while calling the coronavirus pandemic the greatest emergency perhaps since Independence - warned the Centre that non-performing assets (NPA) could increase due to the outbreak. He also urged Prime Minister Narendra Modi to prioritize spending on the poor.
In a blog post, Rajan has emphasized on prioritizing spending on the poor that may help them get through the crisis days ahead. Failure to do so could have consequences, he said, citing the mass movement of the migrant labourers that had already taken place.
Spending on the underprivileged at this time is a high priority use of resources, the right thing to do as a humane nation, as well as a contributor to the fight against the virus, Rajan said in his blog posted on LinkedIn.
At the same time, India cannot lose sight of its financial constraints, unlike developed economies such as the US or Europe, which can spend the 10 percent of its GDP without fear of a downgrade in ratings, India has entered this crisis with a huge fiscal deficit and will have to spend even more, the former RBI governor said.
Rajan said a ratings downgrade coupled with a loss of investor confidence could lead to a plummeting exchange rate and a dramatic increase in long-term interest rates and substantial losses for India’s financial institutions.
To salvage the economic growth rate and save jobs, he said many economists had been urging the government to come out with a fiscal stimulus package.