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rajan: India’s economy has some bright spots, a number of very dark stains: Raghuram Rajan


NEW DELHI: India’s economy has “some bright spots and some very dark stains” and the government should target its spending “carefully” so as not to run into large deficits, economist and former RBI Governor Raghuram Rajan said on Sunday.
Known for his outspoken views, Rajan also said the government needs to do more to prevent a K-shaped recovery of the economy hit by the coronavirus pandemic.
In general, a K-shaped recovery would reflect a situation where technology companies and large capitals recover at a much faster rate than small businesses and industries significantly impacted by the pandemic.
“My bigger worry about the economy is the scar on the middle class, the small and medium-sized sector, and the minds of our children, all of which will come into play after the initial recovery. One symptom of all this is weakness Rajan told PTI in an e-mail interview.
Rajan, currently a Professor at University of Chicago Booth School of Businessnote that as always, the economy has some bright spots and some very dark spots.
“The bright spot is the health of the big companies, the massive business activity that the IT and IT support sectors are doing, including the emergence of unicorns in some sectors, and the health of the industry,” he said. strength of some parts in the financial sector.
On the other hand, the “black spot” is the low level of unemployment and purchasing power, especially in the lower middle class, the financial stress that small and medium enterprises are experiencing, “including credit growth very dismal, and catastrophic for our schooling status”.
Rajan thinks Omicron is a step backwards, both in terms of health and economic activity but warns the government of the possibility of a K-shaped economic recovery.
“We need to do more to prevent a K-shaped recovery, as well as a reduction in our medium-term growth potential,” he said.
The country’s GDP is expected to grow above 9% in the current financial year ending March 31. The economy, which has been hit hard by the pandemic, shrank 7.3% in the medium fiscal. via.
In front of Union BudgetRajan says the budget is seen as a document containing the vision and he would love to see a five or 10 year vision for India as well as a plan for the types of institutions and frameworks the government intends to set up.
On whether the government should tighten fiscal or continue with stimulus measures, Rajan pointed out that the fiscal situation of India, even in the time of the pandemic, is not good and this is why The Minister of Finance cannot afford to spend freely now.
While the government must spend where it is needed at this time to ease the pain in the hardest-hit areas of the economy, he said, “We must target our spending carefully so as not to suffer big deficit.”
Finance Minister Nirmala Sitharaman is scheduled to present the 2022-23 Union Budget in Parliament on 1 February.
Regarding the upward trend in inflation, Rajan said inflation is a concern in every country, and India is unlikely to be an exception.
According to him, the announcement of a credible target for the country’s consolidated debt over the next five years along with the establishment of an independent fiscal council to choose the quality of the budget would be very helpful steps. .
“If these moves are deemed credible, debt markets may be willing to accept higher temporary deficits,” he said, adding that in order to convince markets that “we will be held accountable.” , we should strengthen institutional support for future fiscal consolidation.”
Going further, Rajan says that one way to expand the budget is through the sale of assets, including parts of government businesses and excess government land.
“We need to be strategic about what we can sell and how we can improve the performance of the economy through those sales… However, once we decide to sell, we should go fast, which we haven’t done so far”.
Regarding the upcoming budget, Rajan said he would be pleased to see more tariff cuts and fewer tariff increases, and less subsidies or subsidies for specific industries. “In particular, (I) welcome the independent review of the Affiliate Production Incentive programs.”

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