Unemployment, ‘scarring’ of the middle class’ buying power concerns for India, says Raghuram Rajan

The extent of unemployment and the lack of buying power, especially among India’s lower-middle class, are matter of concerns for the country’s economy, former Reserve Bank of India Governor Raghuram Rajan told PTI in an interview on Sunday.

The economist said that the Indian economy had “some bright spots and a number of very dark stains”. He said that in the aftermath of the coronavirus pandemic, the government should take steps to prevent a “K-shaped recovery”, which denotes a wide divergence in the rate of growth between large firms and small businesses.

“My greater worry about the economy is the scarring to the middle class, the small and medium sector, and our children’s minds, all of which will come into play after an initial rebound due to pent up demand [due to the pandemic],” Rajan told PTI. “One symptom of all this is weak consumption growth, especially for mass consumption goods.”

The former central bank governor, however, said that the health of large firms in India was in good shape and that the growth in businesses of companies in the information technology sector was encouraging.

On Union Budget 2022

Rajan said that budgets are supposed to be documents containing a vision and he would love to see a five- or ten-year vision for India being presented when Finance Minister Nirmala Sitharaman tables the Union Budget on February 1.

However, he contended that India’s fiscal situation was not good even coming into the pandemic, and as a reason the finance minister will not be able to spend freely, PTI reported.

He advocated in favour of asset sales, including parts of government enterprises and surplus government land, in order to expand the spending resources.

“We need to be strategic about what we can sell, and how we can improve the economy’s performance through those sales,” he told PTI. “Once we decide to sell, though, we should move fast, something we have not done so far.”