He also cautioned that driving everything from the Prime Minister’s Office, with the same overworked people, may not be of much help.
“There is much to do. The government should call on people with proven expertise and capabilities, of whom there are so many in India, to help it manage its response. It may even want to reach across the political aisle to draw in members of the opposition who have had experience in previous times of great stress like the global financial crisis.
“If, however, the government insists on driving everything from the Prime Minister’s Office, with the same overworked people, it will do too little, too late,” Rajan said in a blog titled “Perhaps India’s Greatest Challenge in Recent Times”.
He said economically, India is probably facing its greatest emergency since Independence.
“The global financial crisis in 2008-09 was a massive demand shock, but our workers could still go to work, our firms were coming off years of strong growth, our financial system was largely sound, and our government finances were healthy.
“None of this is true today as we fight the coronavirus pandemic,” Rajan, who completed his three-year term at the Reserve Bank of India (RBI) in 2016, noted.
He, however, asserted that with the right resolve and priorities, and drawing on India’s many sources of strength, it can beat this virus back, and even set the stage for a much more hopeful tomorrow.
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 suppress the spread of the pandemic through widespread testing, rigorous quarantines and social distancing.
“The 21-day lockdown is a first step, which buys India time to improve its preparedness. The government is drawing on our courageous medical personnel and looking to all possible resources — public, private, defence, retired — for the fight, but it has to ramp up the pace manifold,” he said, adding that the country will have to significantly increase the number of COVID-19 tests to reduce the fog of uncertainty as regards where the hotspots are.
Rajan, a professor of finance at the University of Chicago Booth School of Business, suggested that India should now plan for what happens after the lockdown, if the virus is not defeated.
“It will be hard to lock down the country entirely for much longer periods, so we should also be thinking of how we can restart certain activities in certain low-infection regions with adequate precautions,” he said.
Healthy youngsters, lodged with appropriate distancing in hostels near the workplace, may be the ideal workers for restarting such activities, Rajan pointed out.
Noting that in the meantime, India obviously needs to ensure that the poor and non-salaried lower-middle class, who are prevented from working for longer periods, can survive, he said, “Direct transfers to households may reach most but not all, as a number of commentators have pointed out, and the quantum of transfers seems inadequate to see a household through a month.”
The country is under a 21-day lockdown as part of larger efforts to curb the spread of the coronavirus.
Several international agencies have cut in their growth estimates for India in recent days on concerns about the fallout of the COVID-19 outbreak.
According to Fitch Ratings, India may post a two-per cent GDP growth in 2020-21, the slowest since the economy was liberalised 30 years ago.
The Asian Development Bank (ADB) sees India’s economic growth slipping to four per cent in the current fiscal (April, 2020 to March, 2021), while S&P Global Ratings last week further slashed its GDP growth forecast for the country to 3.5 per cent from a previous downgrade of 5.2 per cent.
Moody’s Investors Service has also slashed its estimate of India’s GDP growth during the 2020 calendar year to 2.5 per cent from an earlier estimate of 5.3 per cent and said the coronavirus pandemic will cause an unprecedented shock to the global economy.