GDP numbers should alarm us all, says Raghuram Rajan

The 23.9% contraction in GDP growth numbers for the first quarter of FY 2020-21 “should alarm us all” and the government and its bureaucrats need to be “frightened out of their complacency” and into meaningful activity, former Reserve Bank of India Governor Raghuram Rajan said in a LinkedIn post. With discretionary spending expected to stay low until the virus is contained, government-provided relief becomes all the more important, Mr. Rajan said, adding that the government’s reluctance to do more today to conserve resources for a possible future stimulus is a “self-defeating” strategy. “So, government officials who hold out the possibility of a stimulus when India finally contains the virus are underestimating the damage from a more shrunken and scarred economy at that point.” Instead of claiming there is a V-shaped recovery round the corner, Mr. Rajan said, they should wonder why the United States, despite spending over 20% of GDP in fiscal and credit relief measures, is still worried the economy will not return to pre-pandemic GDP levels by the end of 2021. On the resource front, Mr. Rajan said, India could borrow more without scaring the bond markets if it committed to return to fiscal viability over the medium term – for example, by setting future debt reduction targets through legislation, and committing to honest and transparent fiscal numbers with a watchdog independent fiscal council.