'Full economic recovery to take very long time,' says Raghuram Rajan on COVID-19 impact

Former Reserve Bank of India (RBI) governor Raghuram Rajan said on Wednesday mild signs of improvement in Indian economy are visible even though a lot needs to be done as the full recovery will take a long time.

He stressed on factors impeding India's comeback such as containing coronavirus, coming out with a vaccine, effective method of testing, and getting medical policy right.

Talking about several issues concerning the current situation in the world and India alike, Rajan told CNBC TV18 why macros and markets are contradicting, adding that bouts of anxiety over the COVID-19 pandemic can bring markets down. He further stated that India cannot afford to bail out all companies like the USA.

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"Clearly the fear factor is mounting in India. We haven't contained the virus yet and it still looks like it is growing in an exponential way. Given these concerns, at some point this is going to be damaging for the economy. People are not going to come out and spend beyond a certain point. Yes, we do see a little bit of a V-shaped recovery, but that's because we went down so far and the initial comeback is just the opening. What is really needed is a full recovery and that's going to take a very long time," Rajan said.

The former RBI governor further highlighted global economies are going to be significantly impacted except Europe and East Asia, that have managed to contain the virus and are in the process of ensuring a quick and stronger turnaround. He underscored that unless "there is good news on COVID-19 vaccine discovery and a quick and cheap method of testing, we are going to have bouts of anxiety that could bring the stock markets down."

Also Read: Lockdown not enough to contain coronavirus in India: Raghuram Rajan

Talking about how India can design a macro-economic policy, Rajan said that the country first needs to get its medical policy right.

"I understand the enormous efforts going about, the brave warriors such as doctors, and healthcare workers, fighting the COVID-19 pandemic from the front lines, but that is not sufficient. India now has the third-largest number of coronavirus cases in the world," he highlighted.

"Although the developing countries including India with large rural areas, have had relatively low death rates, a World Bank paper suggests that it is a puzzle. Why is it that the deaths per million are so much lower amongst the emerging nations? Albeit it's beneficial for such countries, but the increasing number of coronavirus cases need to be brought down as well. Until India manages to contain the virus cases, its economy is not going to open fully. Bending the curve on a reliable basis is the need of the hour," Rajan stressed.

Commenting on the Modi government's Rs 20 lakh crore economic stimulus package to rescue the COVID-19 affected economy, Rajan said that it was insufficient. He said that although the Centre provided migrant workers with free food grains under the package, they have become unemployed, and need money to buy vegetables, milk, edible oil and pay rent.

Also Read: Fixing the economy: What Raghuram Rajan wants Modi govt to do