Countries fighting Covid-19 in decentralised manner doing better: Raghuram Rajan

Former Reserve Bank governor Raghuram Rajan has said the countries that tried to fight coronavirus pandemic in a decentralised manner have done reasonably well as compared to others.

Citing the example of Germany and South Korea, Rajan said that these countries have allocated resources at the centre but left the details to provinces.

In case of India, he said, as a result of the nation-wide lockdown, which was imposed after four hours notice with effect from March 25, the regions which did not have coronavirus cases at that time suffered economically.

“I do want to point out difficulty of having decision taken at the centre, when the centre does not know what is happening in much of the country. Take for example,the Indian decision to essentially close down.

“…you soon found that some areas which did not had many coronavirus infections were actually suffering economically so the entire national lockdown had to be withdrawn perhaps too early in some place,” Rajan said in an interview with CoronaNomics.

CoronaNomics is a Youtube channel where the world’s top economic experts discuss how to tackle the economic impact of coronavirus.

He also pointed out that Mumbai and Delhi were at the centre of infections when nationwide lockdown was announced but some areas of northeast did not have many infections at the time.

Rajan, who is currently a Professor of Finance at The University of Chicago Booth School of Business, said what decentralisation does is, it allows locals to address the problem, while of course it is being helped by the central government.

The economist also said that in many Indian cities, one of the problems is the mayor in the city are largely disempowered, and because they are disempowered, the public services in the city tend to be neglected.

Replying to a query whether the Bank of England’s mandate should be changed from targeting inflation to targeting GDP growth, Rajan said the old problem of central bankers was how to keep inflation down.

“That was a problem in 70s, 80s and 90s. Unfortunately, the central banks have seemed to have succeeded in keeping inflation down.

“Now the problem is inflation is too low, how do we get it up is specially in a world with enormous debts contracted during the pandemic,” he noted.

He, however, said a little bit of inflation helps, and added that “My own preference is lets try and figure out what else we can do to elevate growth rather than relying on monetary policy magic”.

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