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    India needs to look beyond what rating agencies think, says ex-RBI governor Raghuram Rajan

    Synopsis

    The Indian government has announced several initiatives to help the poor and small- and medium-size businesses, but actual cash outgo from the government's measures has been estimated at just about 1% of GDP. Several attribute the fiscal prudence to fear of a downgrade after Moody's cut India's rating and outlook in early June followed closely by a change in outlook from Fitch.

    Rajan said the RBI needs to focus on whether credit is reaching the stressed areas of the economy and also if the viable firms were able to access credit and not the unviable ones.
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    MUMBAI: Former Reserve Bank of India governor Raghuram Rajan said on Thursday that overly focusing on what sovereign rating agencies think can take one's eyes off what needs to be done for the economy.

    "It is also important to convince both domestic and international investors that after the crisis associated with the pandemic is over, we will return to fiscal responsibility over the medium term, and the government should do more to convince them of that," Rajan told the Global Markets Forum.

    India was placed under one of the strictest lockdowns in the world in late March for more than two months to stem the spread of the coronavirus, but cases have continued to rise steadily since the government eased restrictions in June, stymieing hopes of an economic recovery.

    The government has announced several initiatives to help the poor and small- and medium-size businesses, but actual cash outgo from the government's measures has been estimated at just about 1% of GDP.

    Several attribute the fiscal prudence to fear of a downgrade after Moody's cut India's rating and outlook in early June followed closely by a change in outlook from Fitch.

    The central bank on its part too has reduced the key lending rate by 115 basis points on top of the 135 bps last year and is widely expected to cut rates by another 25 bps later on Thursday.

    "The RBI and government have certainly been cooperating, but it seems like it is elsewhere, the ball is in the government's court to do more," Rajan said.

    He said the RBI needs to focus on whether credit is reaching the stressed areas of the economy and also if the viable firms were able to access credit and not the unviable ones.

    "And I think that's where it has to focus its attentions, because resources, as you well know, are limited in India today."

    Recently analysts, however, have cited the growing possibility the RBI may prefer to pause and cut rates only at its October meeting.

    Government officials too have suggested the possibility of any more fiscal stimulus being announced, would only come in the second half of the fiscal year, once a recovery has taken root and coronavirus cases have peaked.

    "What India should focus on at this point is protecting its economic capabilities, so that when it has dealt with the virus it can go resume activity in a reasonable way. That should be the focus," Rajan said.

    "And if it does that, there is no reason why the rating agencies will not see that as an appropriate policy".
    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

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    49 Comments on this Story

    Raghavendra Belur51 days ago
    Dear All
    Today every one wants to be in limelight with others cost.
    All loans giver earlier without proper thinking have gone bad.But today same people say don't know how to collect.
    When it was given was itvnot thought twice or was it given on advice of any one so as to sit in the post for personal benefit at others cost
    Today people having knowledge has to use it in proper ways rather speaking in open forum and trying to get recognised without proper vision.
    Thanks
    Raja Gupta52 days ago
    Wies words!
    Rajnish52 days ago
    Mr R Raman I think you are working toward down-lift -ment of common people, do you know how many common people loose their jobs and earnings, You know nothing of pre /post Covid-19, you are sitting in drawing room and giving views and trying to attract the BJP people to takeover for next economic activities. Mr Raman every borrower want to give emi. Your statement: "Once you told people don't pay, it became hard to get them back into the payment habit". Sir common people strongly object your statement, please be polite to post Covid-19 era, don't be too harsh on economics, people have voted BJP government to have a caring government, not yours habit of drawing blood from miserables, beware those who were paying for years, will pay for another span of years too, you can't resist for few months in giving Moritorium, and who are you to give your harsh statement in public. Mr Raghuraman don't drill from bleeding Covid Era.
    The Economic Times