Former RBI Governor Raghuram Rajan has said that as the payment moratorium allowed by the central bank, along with other repayment relaxations, comes to an end and several entities are expected to default, the government should come up with a "well-thought-out" wholesome plan to deal with the upcoming financial stress, rather than going for "piece-meal" solutions.
In a note on LinkedIn, the noted economist said that a variety of structures should be in place to help debtors and claimants, such as landlords and banks, reach agreements to restructure the obligations, including writing off unpayable amounts.
"As the various payment moratoria come to an end, a number of entities will be unable to repay. Instead of reacting in a piece-meal way, the government should have a well-thought-out plan to deal with the coming financial distress," he said.
Rajan said that a number of arbitration forums should be set up to renegotiate claims of various sizes. Civil courts, debt recovery tribunals, and the NCLT should be beefed up to provide rapid back-up judgments.
Talking of stimulus required from the government, he said that given the depth of the contraction in the GDP, a stimulus will also be needed, especially investment in infrastructure construction which creates jobs and increases demand for all manner of inputs like cement and steel.
The Centre should replenish the coffers of the state governments, which typically spend more on infrastructure. This can be accounted for as part of the GST dues the Centre owes the states, he said.
In addition, according to him, the Centre should notify shelf-ready projects that are in the National Infrastructure Pipeline for implementation.
"Given the lead time for such spending, all this should happen now," he said.
To improve competitiveness, long-debated reforms to land acquisition,labour, power, and the financial sector should be implemented, as should recently announced reforms in agriculture, said Rajan.
"Temporary half-baked 'reforms', such as the recent suspension of labour protections in a number of states, will do little to enthuse industry or workers, and give reforms a bad name."
He was of the view that India needs strong growth, not just to satisfy the aspirations of the youth but to keep its unfriendly neighbours at bay.
The former Reserve Bank of India (RBI) Governor said that the recent pick-up in sectors like autos is not evidence of the much awaited V-shaped recovery, as claimed by many.
"It reflects pent-up demand, which will fade as we go down to the true level of demand in the damaged, partially-functioning economy. No doubt, the government and its bureaucrats are working hard as always, but they need to be frightened out of their complacency and into meaningful activity. If there is a silver lining in the awful GDP numbers, hopefully it is that," Rajan said.