“Decentralisation of power” is the cure for India’s coronavirus-induced economic slowdown, according to the country’s former central bank governor Raghuram Rajan.
A professor of finance at The University of Chicago Booth School of Business now, Rajan was speaking to Congress parliamentarian Rahul Gandhi in a video chat streamed on social media today (April 30).
“Rather than focus on distributing output, focus on distributing opportunities,” he said during the 30-minute session, adding that there is a need to empower local governments, which are better placed to understand the needs of people.
The economist’s statement assumes significance as India’s many states have seen their revenue streams run dry amid the lockdown. Yesterday (April 29), Kerala’s finance minister Thomas Isaac said the state had not received its share of April’s taxes from the central government and “there’s no way to really raise funds.” Many states have been demanding more funds from the Narendra Modi government.
“There is the bureaucratic temptation to centralise. If I can grab the power, why not? So that is a constant desire,” warned Rajan, who was the chief economic adviser to the Congress-led United Progressive Alliance (UPA) government in 2012.
Level the playing field
There is a dire need to bridge inequality in these times of economic stress, said Rajan. This can be done by creating quality jobs to offset the recent streak of job losses in the economy.
He also stated that the government must release Rs65,000 crore ($8.5 billion) for the welfare of the poor. “We need to find ways of getting both money as well as food through public distribution systems to as many of these people as we can.”
At the same time, Rajan highlighted that the country’s “fiscal resources are more limited” compared to the West. Hence, “India needs to open up (from the lockdown) in a measured way.”
As Indian economic activity opens up after weeks, Rajan said steps should be taken to isolate new cases of coronavirus that emerge. A second lockdown will be even more devastating and will destroy people’s trust in the measures taken by the government, he said.
Rajan, who was Reserve Bank of India governor between 2013 and 2016, was known for his frank views on economic and political matters.
Watch the full webinar here: