Rajan, meanwhile, said that the central and state governments will have to maintain increased spending, whatever the deficit figures may be, and there may be a need for substantial stimulus going forward. When asked by other panelists on the need for the RBI to directly monetise the Centre’s fiscal deficit, Rajan said that the amount parked in reverse repo could be considered as the extent of government funding by the central bank.
Rajan also said that there were three distinct issues which were being confused with each other as a response to the pandemic. Namely relief, repair and stimulus. “You cannot see relief and repair as part of a stimulus, and this time repair is the most important,” Rajan said.
Rajan said that any further spending support should be more on relief than a classical Keynesian stimulus. “There has been lots of destruction. Firms which otherwise contribute to India’s GDP have not been able to function for the past three months. That is where you need to target any further intervention,” he said.
Banerjee, meanwhile lauded the government’s efforts to ramp up cash transfers to targeted beneficiaries during the Covid-19 pandemic, but said that the amounts should have been bigger. Banerjee pointed out that not having an empirical or policy base for understanding internal migration had really hurt India, as evidenced in the migrant crisis. This was compounded by the fact that there was also a lack of a cohesive housing plan for migrants across the country.
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