Emphasizing the importance of government help or support in the given scenario, he noted that so far it is “scarce.”
In a note posted on LinkedIn, he also opined that the 23.9 percent GDP contraction during the first quarter would be “even worse if the damage to the informal sector is taken into account.”
“The recently released quarterly GDP growth figures for the first quarter of fiscal 2020-21 should alarm us all. The 23.9% contraction in India (and the figures will likely be worse when we get estimates of the damage in the sector informal) compares with a 12.4 percent drop in Italy and 9.5 percent in the United States, two of the advanced countries hardest hit by Covid, “Rajan said.
He said India is “even worse off” than these comparisons suggest. Since the coronavirus pandemic is still raging in India, discretionary spending, especially on high-touch services like restaurants and associated jobs, will remain low until the virus is contained, Rajan said, adding that the government’s relief is still coming. most important at the time. script.
However, government support so far has been “meager,” he said, mainly in terms of free food grains for poor households and loan guarantees to banks to make loans to small and medium-sized enterprises (SMEs), where phase-out has been irregular.
“The government’s reluctance to do more today appears partly because it wants to conserve resources for possible future stimulus. This strategy is counterproductive,” said the former RBI governor.
According to him, at a time when the government should expand resources to spend more and take more action, the Indian government “appears to have retreated into a shell” after an initial outbreak.
He said the government and public sector companies should settle their accounts payable quickly so that the liquidity is transferred to companies.
Also, small businesses below a certain size could receive a refund on corporate income and GST tax they paid last year, or a portion of it, and the refund will decrease with the size of the business.
This would be an objective way to help viable small companies based on a metric that is difficult to manipulate, even rewarding their honesty, Rajan said, adding that eventually the government will likely have to set aside resources to recapitalize the public sector. banks as losses are recognized.
According to Rajan, the private sector should also be encouraged to lend a hand.
“Cash-rich platforms like Amazon, Reliance and Walmart could help smaller vendors recover, even by financing some of them. All large companies should have incentives to settle their accounts receivable quickly,” he said.
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