Former RBI Governors on the Covid19 crisis

  1. C Rangarajan interview.
  2. Raghuram Rajan article:

Economically speaking, India is faced today with perhaps 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. Yet there is also no reason to despair. 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.

2. Urjit Patel joins in as well:

The policy roll-out over the past couple of weeks has, for the most part, been sensible. There has been some commentary that the fiscal-financial programme isn’t bold enough. Perhaps so under certain assumptions, but we have to be mindful that this is not only a constrained exercise in policy making at the current juncture, we also have to brace for likely multiple impacts over an uncertain timeline that could last a year.

The welfare support — encompassing both food and money — by the government to help the most vulnerable, as also to partially defray the cost of retaining workers in smaller enterprises, for the next few months has combined compassion and prudence. And further spending has not been ruled out. Having said this, we do need to expend more resources on preventing Covid’s spread because massive prevalence testing now could, but not guaranteed to, help avoid another national lockdown or reduce the need for multiple localised lockdowns later. So, the optimal policy timing needs to take this externality into account without delay. For the size of our population, the quantum of tests we have conducted so far seems to be too few. The government should bear the entire cost for testing, for without the requisite data we will be flying blind when making the difficult calls in the weeks ahead. The benefits are obvious, viz., credible data will infuse confidence in both the health and economic spheres, and lack of credibility will breed uncertainty, slowing down economic recovery.

Urjit takes on the strategy of restricting trade flows and easing capital flows:
Last week, our breathless pursuit for being part of global bond indices gathered pace. Over the past year, we have incessantly relaxed prudential norms related to external flows management, opening up yet more the possibilities of surges and sudden stops of “hot” foreign capital with well-known attendant consequences. It is an expedient policy in the hope that it will lower borrowing costs for the central government; this may only help in the short run, and in the current environment even that is not apparent. Going down this policy route is puzzling at a fundamental level. While we erect trade barriers to imports through higher custom duties, we are opening the capital account for “bond tourists” further (even as hurdles are raised on outward remittances for households). How does one square this circle since it is well founded that high import barriers ultimately undermine national competitiveness and it is mostly export earnings that will have to service external liabilities? The strategy, leave aside the vision, behind this bi-polar economic policy is not apparent.
Tough words!

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