Covid-19: India faces greatest economic emergency since Independence, says Raghuram Rajan

Hemani Sheth Mumbai | Updated on April 06, 2020 Published on April 06, 2020

Raghuram Rajan, Advisor, Krea University

The coronavirus pandemic is likely to be the biggest economic crisis faced by India since the emergency according to former Reserve Bank of India governor Raghuram Rajan.

“Economically speaking, India is faced today with perhaps its greatest emergency since independence,” Rajan said in a post detailing his views about the pandemic on LinkedIn.

“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,” he further said.

The former RBI chief added that the crisis could be mitigated with proper measures, prioritizing containment and spending more resources on the needy.


“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 hopeful tomorrow,” he wrote in his post.

According to Rajan, though our priority should be containment of the virus through widespread testing, rigorous quarantine and social distancing, the country could not be locked down for much longer periods. The government will have to think of ways to restart activities with thorough precautions in regions that are less impacted by the outbreak.

Aiding the needy survive amid lockdown

He also added that the country needs to ensure that the poor and non-salaried lower middle class can survive amid the lockdown.

“Direct transfers to households may reach most but not all, as several commentators have pointed out,” he said.

“Spending on the needy 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, “ he added.

Not ensuring that the needy are prioritized could have consequences, the former RBI chief said citing the example of the mass exodus of migrant workers. He further detailed measures as to how the state and centre can take various steps to ensure that the lower class can survive.

“The state and centre have to come together to figure out how quickly some combination of public and NGO provision of (food, healthcare, and sometimes shelter), private participation (voluntary moratoria on debt payments and a community-enforced ban on evictions during the next few months), and direct benefit transfers that will allow needy households to see through the next few months,” he said.

Helping small businesses

According to Rajan’s post, small businesses will also face a significant economic impact due to the COVID-9 pandemic. The government should ensure that the impact is cushioned with steps such as providing more favourable terms of loans to SMEs by SIDBI. Large firms could also find a way to channel funds to small suppliers by raising money in bond markets and passing it on, he added.


“Banks, insurance companies and bond mutual funds should be encouraged to buy new investment-grade bond issuances, and their way eased by RBI agreeing to lends against their high-quality bond portfolios through repo transactions,” he further said.

The country has entered into this crisis with a huge fiscal deficit. However, it could provide an opportunity to introduce socio-economic reforms that can help the country bear the economic impact of this situation.

“It is said that India reforms only in crisis,” he said.

Published on April 06, 2020

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