Former RBI governor Raghuram Rajan has cautioned that after opening up if you are forced to shut down it would that be devastating for economic activity as it would create a trust deficit. It would diminish credibility.

“We have to manage the reopening so that when there are cases we isolate them. I don’t think we have to aim for 100% success or zero cases,” he said Thursday during a video conversation with former Congress president Rahul Gandhi on the sequence of opening up of Indian economy.

Responding to Gandhi’s view that at the heart of the process is testing and our ability to test is comparatively limited, Rajan said the US has ramped up testing to 1,50,000 tests per day but the concern among  epidemiologists is that to really open  up economy you have to triple the testing numbers to 500,000 at least. “For India’s population you have to do 2 million tests a day to get the level of confidence of the US. Clearly we are nowhere near that and have 25,000-30,000 tests a day at the moment.

“To open up we have to do mass testing of say 1,000 samples and check if there is any sign of virus in those 1,000 samples and if there is a virus then you need to go deeper to check who it could be. These ways of testing can reduce burden on testing infrastructure and allow us to vet much more. In some sense, this is less intensive but cleverer. And we have to be cleverer about reopening the economy,” he said.

Rajan, now Katherine Dusak Miller distinguished service professor of finance at the University of Chicago Booth School of Business, said that lots of work needs to be done both on  creating structures and ensuring that workplaces are relatively safe, to isolate cases quickly and ensuring that fresh cases are quickly isolated. It is not just distancing at the workplace but also to and fro travel from the workplace, the transportation system, if people have private transport like their two-wheelers and cars or is it public transport? How do you maintain the distance?”

He reiterated that it would be devastating to go into a second or a third lockdown.
When Gandhi asked how one can strike balance between fighting the virus right now and consequences of fighting the virus three-four months down the line, Rajan said that there will have to be prioritization of resources as our capacities and resources are limited. “Especially our fiscal resources, when compared to the west, are limited. Most immediately, food is extremely important to reach every place where public distribution system does not reach. Amartya Sen, Abhijit Banerjee and myself have spoken of temporary ration cards for people who don’t have access. We have to have great norms in order to tackle what is needed keeping in mind overall budgetary limits as there are only limited resources we have.”

When the Congress leader asked how much money is required for migrant and agriculture sector workers, Rajan said, “It will require Rs 65,000 crore to help the poor and that should not be a problem as India’s GDP is Rs 200 lakh crore. The efforts made on DBT need to be realized at this point in time. We need to find means of getting money as well as food through PDS to as many people as we can.”

He also said that once we are out of this crisis there will have to be a rethink in entire global economy. India has an opportunity in shaping a dialogue as it is big enough country to have its voice heard in global economy. It can try and mould the dialogue towards one which has greater place in multi polar global order.

Responding to Gandhi’s question if too much of centralization was preventing dialogue, Rajan said that across the world you see a great sense of disempowerment. “Decisions are being made elsewhere and not by me. I have a vote but that elects someone in a far-off place. My local panchayat, the state government has less power, feel helpless and fall prey to different sets of power. But if you look at the  market participants they want to see the same rules, coordinating structure, and government everywhere as that gives them confidence. This uniformity takes away power from local or national governments. In addition there is bureaucratic temptation to centralize.”

Posing a question to Gandhi, Rajan asked: “Your father Rajiv Gandhi brought back the panchayati raj. What effect has that had?” Gandhi replied, “It has had a huge effect but I am sorry to say it is in retreat … we are now moving back to bureaucratic, district magistrate-based structure. If you look at southern states, they are doing a better job as they are more de-centralized. Northern states are centralizing power and taking away power from panchyats and grassroot organizations.”

Rajan agreed that the closer the decisions are taken to people, more ability they have to keep a check. “The  central authoritarian model, a strong figure in a powerless world, is sometimes appealing if you can develop a personal rapport with that figure and you feel they care for the people. The problem with the authoritarian power is that they can develop a sense of being in power of the people and their rules apply and it is not a decentralized structure. Historically that has put too much weight on that centre and eventually that collapses.”

Asked if it would be fair to say that something has gone wrong with the global economic system, the economist said, “I do think it is a fair statement. It is not working for a lot of people. The growing inequality of incomes and wealth in developed countries and precariousness of jobs that do not ensure income and safety net is a source of concern. We have a problem of slowing growth, we cannot dispense with markets and do need growth.

“We are also struck with inadequate distribution. Rather than distribute output we need to distribute opportunity. While creating opportunities and capabilities we need to re -think what our markets and industrials look like. We still have remnants of old licence permit raj and need to create many more new jobs of good quality,” he said.
 
Rajan also said that unemployment numbers are really worrying. “The Centre for Monitoring of Indian Economy (CMIE) data shows that virtually 100 million more people have been put out of work. This can always be disputed but this is the only data we have and the numbers are mindboggling. … We need to open up in a measured way as fast so people can have jobs as we don’t have the capacity to support people for long being a relatively poor country.”

He added that there certainly is an administrative challenge in reaching everyone and enhancing the level of living. “The range between the lower middle class and the middle class is where we need good quality jobs so they are and not dependent on government jobs and comforts that come with it. This is where tremendous expansion in economy is absolutely necessary. Despite a large young labour force we have seen a progressive decline in rate of our economic growth. Let’s not pick amongst possibilities but create the opportunity for them flourish.”
 
Citing with an example he said, “We have grown wonderfully in software and out sourcing services. This just emerged and some people would argue that the government didn’t pay attention to that camp. We need to allow the enterprise of people to take a decision,” said Rajan.           
  
Rajan asked Gandhi about his views on the big difference between governance in the west and reality of life in India. Gandhi replied that at its heart financial scale is the problem. There is inequality. Indian and American societies are structured differently. Some of the ideas that hold India back are embedded and often hidden. “I think lot of social change is required in India. For Instance, the politics, language, culture of Tamil Nadu is different from UP and a blanket system solution for entire country cannot work. You have to model things around them.”

He also said that as opposed to the US there is an element of control in our governance and administration system and this is historic of India even before the British rule. “The level of inequality annoys me and this kind of inequality you do not see in the United States.”