Speaking at NCAER’s India Policy Forum 2020, Rajan said the current situation is unlike normal recession, there is enormous amount of destruction, which has happened to households and firms both, and that’s where relief and repair has to come in along with stimulus.
Expenditure Secretary T V Somanathan asked him on what Rajan thinks would be safe level for expenses on repair and what is the appropriate level of fiscal deficit up to which one can finance repair, Rajan said “it is necessary to spend money on the profitable firms to boost economy in the longer run”.
“I am not saying to open the flood gates and spend on anything. The reality is we need to spend judiciously on those firms which will benefit the economy going forward. So, we need to spend on profitable firms which are now in danger because they haven’t produced revenues for 4 months, but have been incurring costs.”
“That’s the kind of judgement that has to be made. That is required for longer run health of economy,” he added.
Rajan said if a firm is unable to function, that’s a loss to GDP going forward.
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