Raghuram Rajan, former governor of the Reserve Bank of India, had predicted a deeper crisis caused by the coronavirus pandemic in the coming six months.
Raghuram Rajan openly disapproved of finance minister Nirmala Sitaraman’s neglect of this major problem and highlighted the concern that banks will see the unprecedented force of bad debts in the days ahead. He drew a line stating that pandemic-induced recession is different from normal recession. “Initial bout of pent up consumption can’t be taken as normal consumption. This pandemic will adversely affect all the players in the economy. The financial sector will see a huge increase in bad loans after the pandemic. In such a scenario, focussing on credit rating is nuts. The focus should be on expenditure and how to come out of the recession.”
As for Sitharaman, he seemed disappointed by the fact that she very conveniently avoided the challenges the country is facing at present.
In a webinar organized by Delhi-based economic think tank NCAER, he said, “I don’t know when the piece was written but it was thoroughly disappointing. The levels of NPA will be unprecedented six months from now. We are in trouble. Sooner we recognize it, the better for us.”
But having highlighted the problem, he also came up with a possible solution. He said, “one way to deal with bad loans was the National Company Law Tribunal (NCLT), but it had been suspended. We are in trouble, the sooner we recognize the better it will be. How would the system deal with mounting bad loans in the financial sector? He cautioned that one should not confuse pent up consumption with normal consumption as nothing is normal about this situation and the government and higher authorities must realize this sooner.
To know more about the India news: